Ideas & Debate

Kenya’s middle class is fast vanishing courtesy of State

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The middle class is increasingly being left out of many government initiatives as shown by some state policies. FILE PHOTO | NMG

In 1965, Kenya laid out its post-independence economic blueprint through the famous Sessional Paper Number 10 of 1965 titled “African Socialism and its Application to Planning in Kenya”. The masterplan also asserted the country’s non-alignment to either Western Laissez-faire capitalism or Eastern communism.

Core tenets of the paper included (i) political equity (ii) mutual responsibility baked with State interventions, where necessary (iii) a blend of property ownership to avoid concentration of economic power and (iv) a progressive tax system to ensure an equitable distribution of income and wealth.

However, the paper would receive stinging criticism for perpetuating colonial capitalism to the benefit of the international and indigenous African bourgeoisie (Colin Leys, 1975), and saliently appeared to lay ground for modern day crony capitalism.

By definition, capitalism is an economic system where private entities own the factors of production. In simple terms, and paraphrasing David Ndii, capital hires labour. This makes capital powerful, and labour weak.

Thus, the system is prone to concentration of economic power, which invariably translates to political power, thus undermining the democratic principle of political equity. At the heart of capitalism is free markets, where market forces of supply and demand control price(s). With a highly concentrated economic power, crony capitalism has been known to rig market prices. Nonetheless, capital and labour is rewarded by way of dividends and wages respectively.

Conceptually, if economic output expands, private enterprises do well, the owners draw fat dividend cheques and employees are rewarded with wage raise(s). And everybody lives happily ever after—or so.

It has been a different ball game over the last couple of decades. Instead, an economic system benefitting the corporate-wrapped bourgeoisie appears to have emerged. Look at the attached chart plotting private sector wages (as a share of Gross Domestic Product-GDP) versus corporate earnings (as a share of GDP).

Between 2002 and 2007, which represents the period of a new political dispensation in Kenya, wages appear to keep in tandem with corporate earnings. However, a divergence emerges in 2008, where corporate earnings completely disentangle from wages (not to forget that the 2008 economy was excruciatingly scorched by elevated political risks).Broadly, this divergence between corporate earnings and wage growth speaks to the fact that as the economy grows, the benefits are not passed onto labourers and only the few, often described as ‘one percent’, corporate-wrapped bourgeoisie, benefit. And it appears to be unstoppable.

The divergence also speaks to a core structural weakness of capitalism as an economic system—it often cultivates large income inequalities. As a non-countenance measure, labour has to organise, by way of unions. In Kenya, as depressed as the wages are looking, labourers must finance a living and pay tax before they can think of saving, contemptuous of the elevated cost of living and tax demands. This beautiful chart, in my assessment, is a classic display of the government killing the middle class—and probably calls for alteration of certain running economic policy stances.

First, tax policies ought to be progressive enough to distribute benefits more widely. In this regard, corporate tax breaks should be relooked, as they appear to confer all the benefits on capital owners.

In the draft Income tax Bill, 2018, the Cabinet Secretary for Treasury has outlined five corporate tax breaks, while offering none to the working class. Essentially, the Government is only keen to advance corporate welfare at the expense of the working class. This is what you call plutonomy.

Secondly, the government must ensure that productive assets in its hands are solely used for the benefit of society. The current set-up appears to promote individual accumulation at the expense of national accumulation.