COMMON SENSE ECONOMICS FOR LIBERIA
Governance is a straightforward affair. It is only made complicated when we infuse politics and veer off time-tested principles that guide, strengthen, stabilize and define success in major capital market economies. Economics is not just about industry and the application of capital market instruments, it heavily involves understanding the historical lessons that move those forces. Having a hands-on appreciation for the historical aspects of economics is just as important as exercising the art itself! In fact, failing to understand the historical applications that drive the machine that is economics will place any country in a stagnated state like the one we have experienced in Liberia for some 150 years!
In this piece, I will lay out simple common-sense approaches to address the failing state of the Liberian Economy. I will provide clear instructions on how we can reverse the collapsing system and the growing rate of inflation that continue to burden everyday Liberians.
First, we must understand the role of government and the reasons for the institution thereof. Governments are setup to function like referees, providing security, law and justice, equitability in the distribution of the country’s resources, and an enabling economic environment where each and every person can pursue and achieve her full potential. Government’s role is not to provide employment, howbeit welcomed if it does. One of its primary duties is to setup and protect independent institutions that administer the affairs of government and ensures jobs and opportunities are available in the society for its citizens. However, governments must not be dormant throughout this process – yes, even in the free capital market system. Government must strategically “salt and pepper” the economy using free market principles, and with expert advice, exert logically controlled intervention policies to advance its desired objectives.
On the contrary, countries in the Third World and more specifically Liberia have had staggeringly diverse developmental experiences simply because we have foolishly refused to employ the very economic principles that have taken developed countries to heights we can only imagine. However, delay in this case could actually work to our advantage because we could learn from their mistakes and develop a more robust system. But first, let’s look at what other countries did when they were in our position. Take India and South Korea for example. Before 1980, these countries were in a worse social-economic state than we are in today! They look like any Third World Country; in fact, some parts of India still look that way today. By any standard, both countries were extremely poor: India’s GNI (gross national income) per capita was about $160 (in 1980 dollars) and South Korea’s stood at around $350 – Liberia’s at this same time was $490 (World Bank), with a much smaller population and more natural resources to make both countries salivate. Their life expectancy hovered around 45 years; roughly 70% of their populations worked the fields, accounting for 40 percent of their national incomes. South Korea was far worse off than India which had some infrastructure left by their colonial masters, including railroad, a relatively high literacy rate, a competent judiciary and a system to guide their developmental process. South Korea had mostly peasant farmers.
These countries were so far behind the industrialized world that no economist worth his salt would have predicted or even conceive that either country would have attained a reasonable standard of living in the next 100 years! In fact, the West wrote these countries off – like they do us today; believing these places were too poor, too far behind, way too uneducated to be taken seriously or helped. All they could do was to provide “sustaining aid” to somehow slow their downward spiral. But these countries had other intentions. In forty years, a relatively short time, countries which had rejected the orthodoxies of free-market economics, began to revisit them with serious and targeted intentions. By the end of the 1980’s and through the implementation of free-market principles, South Korea increased its per capita to $2,900; it stands at $30,000 today! In contrast, India’s had only risen slightly. Today India GNI is $1700, a respectable number when you consider their huge population of 1.3 billion people! During this same period, Liberia’s GNI per capita dropped below $300. Even the richer countries did not grow as fast as South Korea and India during similar stages of their developmental period. India and South Korea achieved such meteoric rise because they avoided upward inflationary pressures by implementing policies that secured and increased their export commodities – diversifying their export basket thus increasing their foreign reserves; invested heavily in human capital development, and had a grounded, domestic capital market development strategy that was designed by their best and brightest citizens – not untrained and untested loyalists. There was no such thing as giving unprepared or outdated-thinking individuals critical positions that lowered their chances for growth. These countries central banks introduced policies that protected domestic markets from high interest rates hikes and debt-servicing difficulties; they created optimism and investment friendly climate in their respective countries, increasing investors’ confidence and direct investment, thus expanding their tax base to build needed national infrastructure. Such policies were not restricted to India and South Korea however, the rest of the super-achievers of East Asia also known as the “dragons” to include Singapore, Taiwan and Hong Kong were implementing similar policies and experiencing equal exponential growth.
Nevertheless, the question now becomes how do we employ free-market principles to attain the kind of growth the likes of South Korea and the East Asian Dragons continues to enjoy and improve upon? I first want to be clear about government intervention. Government involvement in the free market must be kept at a minimum; its main focus here should be regulatory oversight, a positive laissez-faire intervention to curb inefficiencies and market failings. Government must stay clear of dirigisme, an economic doctrine that promotes frequent and strong directive role by central government in the free-market system. The free market must operate in a mostly free and unencumbered way, free from unnecessary or artificial influences. Let the market grow and adjust freely to what’s happening to it – it creates opportunities that force the market to expand.
On the other hand, and in the case of Liberia, we must go back to the fundamentals. First, we must have a clearly defined Economic Recovery/Stability Act. This act must include economic stabilizing instructions that are tagged, labeled and delegated to abled directors who must submit regular reports on progress and stated achievable along a pre-established grid: where we want to get in a set number of years. Secondly, we must strictly follow the Liberian Constitution and amend it where it has not met modern standards of governance. Heck, I will aggressively advocate that the government becomes constitutionally brutal in the application of the law – the judiciary must play its role as intended. Consequently, weigh free market principles with trained eyes and in the words of Kwame Nkrumah, tailor your own “style of government, suited to its special circumstances” to conform to your national vision. Let’s begin this common-sense approach by cutting the present government workforce by 40%, only maintaining the most prepared! We are all aware that the government is bloated; it must be immediately deflated to ensure it does not suffer from economic constipation! The Liberian Government will function more efficiently and on a balanced scale if this is done. Instead of focusing on who praises you and who doesn’t, the Republic should be focused on the serious business of creating a feasible plan for meeting governance obligations, managing expenses, strategic allocations, bringing officials’ compensation packages in line with GNI in the country, preventing waste – spending less than you earn, and reducing corruption in order to foster a sustainable economic future for the citizens of Liberia. We need economic and progressive ingenuity! Keep things simple and allow complex approaches only when you have upped your capabilities to address them. Stay committedly within the confines of your predetermined plans.
Weigh your resources and direct them to address areas you have prioritized. List areas of economic burdens and devise a plan to address their adverse effect on your objective. Do not lump them into one group, but rather have separate directorship addressing each crucial area while at the same time remaining focused on the shared objective – full economic revitalization. Treat your directors let your personal creditors, have them create plans that guide us out of this trap of debt and economic instability. Appoint abled people, not just people who meet the full spectrum of qualifications but people who are willing to quit and walk away if the leadership refuses to follow time-tested economic instructions. Keep bootlickers and flunkeys far away from these positions – you want to hear the entire truth of what is happening and what is required; sycophants will do the opposite, giving you illegal and illogical economic reports simply to appease. Remember, appeasement has no place in economic revitalization or public administration! Only the truth will get the job done. Have confidence in your own abilities, read more and be more knowledgeable than your lieutenants.
Suspend and in some areas end all forms of consultancies. These so-called “consultants” cost the government millions in unnecessary advisory fees that add little and in most cases nothing to governance. All these “consultants” do is “compete with each other, creating contradictory instruction plans while at the same time overstaffing their works to drive up billable hours.” The most ridiculous part is no one manages them to prevent such grandstanding and mystery accounting that siphon millions from Liberia. Instead of freely giving away millions to services we don’t need or use and being victims of financial shenanigans, cut them off and re-allocate the much-needed funds to crucial areas such as agriculture, education or infrastructure. International financial grants that are followed by expats consultants must be looked at very carefully and be supervised with certain restrictions especially when it comes to the amount that are paid to these “tag along”. These amounts must be administered under Liberian laws with full consideration for Liberian Citizens if the expertise exists. Bring Liberians from overseas if you must, the intent is to keep the monies in Liberian hands and stop the “give and take” underhand donations dealings that are promoted by the wealthier countries.
This common-sense approach must touch every sector of government – there should be no sacred cows and no one should be spared, yes, including the president. In fact, the president must spearhead this process. This process can only work if it’s holistic and there is a national sacrifice made by all especially those in the highest echelon of government. Issue an executive order to reduce and cap all salaries and benefits across the entire government to no more than $2000 USD/month; a huge amount when you consider our per capita income of $700/annum. No official’s salary and all benefits should exceed this amount. End gas slips, rent for officials, phone cards, and such other “chopping”. The legislature must immediately pass a law that ties salaries and benefits to the average civil servants’ salaries and benefits, meaning no future raises of salaries or benefits by any branch of government can be done in isolation – civil servants’ pays will be the common denominator. There will be special cases/exceptions however, they must be approved by a sitting judge and be made public. This should be the framework of the law. Do not be concern about losing people, the opposite will be true. Keep in mind that less than 1% of Liberians can earn more than $2,000USD/month in the private sector, and those who you attract will be those who truly want to serve and not fleece the country.
Moreover, Liberia’s long-term economic sustainability depends on future investment and access to capital markets. I cannot stress this enough, investors weigh every decision, speech, perception and actions/inactions by the leadership of our country – nothing is taken lighted or ignored. Be fully cognizant of this and at all times and lead accordingly. An economy is a very complicated system that balances not just industry, humanity, flow of capital, but equally important is to be aware that it is a living, breathing machine that must be oiled daily with tested decisions that keep the wheels spinning. The individuals who oil those wheels must have an in-depth appreciation of the overall inner working of that machine – qualification matters hugely. Such is our economy. Most investors are very sophisticated and understand these intricacies of the economy. Their decisions to invest or not invest into a given location are informed by the weighted average of all those factors. Your job as a government is to be equally sophisticated so as to influence investors’ decisions to your favor by doing things they expect and are accustomed to. Back to one of the duties of governance: creating an enabling environment where people feel comfortable to bring their money. We must ask ourselves a few questions if we truly want to woo investors: Are our laws investors friendly? Is the cost of doing business comparable when measured regionally? Is the human capital developed enough to support what investors want? How are the power supply issues in the country?
Are basic infrastructure such as water and road adequate to support investment? Security, court system and sovereignty risk issues? What is the level of corruption and official interference – the demanded bribe question? The list is long but these are the crucial questions. Have we answered these questions favorably and in a sophisticated way to satisfy investors’ weighted average decisions to invest in our country? If not, what are our plans? Consider the following recommendations:
Immediately address the investment-friendly requirement listed above.
Create investment-friendly laws and implement them with sincerity.
Investors are not your friends; they owe you nothing except the legal costs of doing business. Remove artificial barriers that complicate the investment process.
Investors do not have to see the president or legislators; it terrifies them given historical records and from speaking with other investors. Yes, they do talk.
Officials do not have to have a stake in an investment simply because they hold an official position. Stop it.
Be completely transparent and do not be seen with investors outside of official business, except for “at the ministry” only dealings. Remove all perception even if you are doing nothing illegal.
Finally, but most importantly, be uncompromisingly aggressive and immediate with legal enforcement and punishments against any official who contravenes these statutes. Be very public with prosecutions and punishments to maintain investors’ confidence. Our commercial courts must justly support this effort.
Furthermore, Orthodox Economics maintains that countries prosper through trade. The application of orthodox principles in the 1960’s benefited the Asian countries in an enviable way. The Dragons, capitalizing on the advantages of cheap labor – Liberia has abundance of this, diversified their export basket, increased their exports, developed a robust price system and increase their foreign exchange with which to buy investment goods from abroad to hasten their industrialization process. Let’s use this historical lesson to beef up our economy, because the principles still work:
Institute a policy to gradually end all extractions of our non-renewable, natural resources to include iron ore, gold, timber, diamond, etc. in 10 years! Close the mines! Why? Because we are being exploited and because our institutions are not developed enough to protect our interest. Save our resources until the capacity is developed and for our own industrialization purposes. Finally, mine closures will force the government to focus in an area with the greatest potential.
Reorient the entire Liberian Market to an agro-based economy and prepare to look outward for growth. To understand why this area will bring about the fasting development opportunities, consider the following statistics:
Liberia has one of the cheapest labor forces in the world – capitalize on this.
The land and weather are perfectly suited to grow almost any commercial crop on an industrial scale.
Liberia has a relatively small GDP (gross domestic product) – $2.23B (World Bank); an amount that can be easily replaced from the industrialization of just three crops like cassava, butter pear (avocado), cocoa, soybean, bananas, pineapple, rice, corn, etc. These crops bring in billions in revenue worldwide every year and are renewal. We can “plant” to cut out our share. Their prices hardly ever drop mainly due to increasing demands caused by increasing world population and urbanization. They are not like natural resources that experience huge price fluctuations. We could literally put every Liberian in the labor market to work in five years if we focus our efforts on agriculture! The refusal to embrace the benefits of agriculture has been one of our greatest failures. Avoid the mistakes of most African Countries which thought that their economies were inflexible and could not adjust to changing conditions or make a drastic move even though their current state of affairs was permanently stagnated.
In addressing our vulnerabilities to adverse economic events, we must understand that the world has changed. There is no more easy access to capital; back-to-back world recessions, high interest rates, a drying up of external finances, and declining prices for raw material, have caused countries to hold on to their limited resources. We must appreciate this reality and do all we can to limit the impact to our own economy by diversifying our export basket.
Developmental strategy based on free market approach holds the view that macroeconomic stability, outward trade, addressing rising inflation, limited interventionist tactics are crucial for rapid economic growth. Adding domestic enterprise and entrepreneurship to that list is equally fitting, especially for a country such as ours that relies heavily on small businesses. Gear a large portion of your austerity measures toward local businesses to reinforce your economic revitalization efforts. Remove all quantitative restrictions and discourage monopolies; protect your local businesses with subsidies and higher importation tariffs against goods that compete directly with locally produced commodities, but keep your market open with fair and adequate regulations. Do not maintain state-run institutions that are inefficient, distort prices and provides near zero contributions. On the contrary, I will strongly advice that entities like LEC (Liberia Electricity Corporation), LPRC (Liberia Petroleum Refinery Corporation), the Freeport, etc. be immediately privatized. Stick with your primary role: regulatory oversight and strengthening governance institutions – the market will move itself.
The current state of affairs in Liberia is very desperate and getting worse by the day. Set aside emotions and petty disagreements – Liberia is bleeding – and directly confront this brewing storm with policies outlined in this article to arrest the coming recession and possible depression. If nothing is done quickly, the people will rise up (because history says so) posing serious sovereignty risk issues. The fact is there is absolutely no way this Weah-led Administration will complete its tenure if it does not quickly address the crumbling economy and put an end to industrial corruption. Let’s table our political bickering, ask for help and use common sense or else, we-will-all-fall-to-ruin!
About the author: Mr. Dualu is the author of several articles including the “Leveraging Liberia’s Resources to Lift the Pro-Poor Agenda” and “The Modernization Guide for Liberia”. He currently works as a senior analyst in Boston, Massachusetts.