Talking Drums

The West African News Magazine

Can the private sector alone salvage Ghana's economy? (Part 1)

Frank Kwaw Codjoe

Frank Kwaw Codjoe takes on the Governor of the Bank of Ghana's statement, made recently, on which direction he would like the country's economy to move, and argues that the concepts of socialism and capitalism have been misunderstood and misapplied in Ghana's 24 years of independence.
Quite recently, the Governor of the Bank of Ghana, Mr J.S. Addo, issued a statement about Ghana's economy and its problems, and the course he wants the economy to take as the basis of government policy. Although the word ideology was nowhere mentioned in the statement published, it is quite clear that it wore unambiguous ideological garb. All Ghanaians want progress and welfare in Ghana. And, indeed, each and every Ghanaian feels very strongly about the deteriorating socio-economic conditions in the country.

But how to achieve the sort of progress and advancement under either of the world's two main ideologies, capitalism and socialism, has become a longstanding debate. The voice of Mr Addo carries great weight, as his view and conception of the economy greatly influence the policies of the government. This makes it imperative for all Ghanaians of whatever ideological leaning, to impartially comment on Mr Addo's statement in order to bring out some of the inherent fallacies.

It is wrongly believed in Ghana, and in most other countries in Black Africa, that whenever the state carries out or controls any economic activities, socialism automatically prevails. I will be quoting Mr Addo in the course of this article. Let me say, first of all, that the problem in Ghana does not derive either from the inefficiency of socialism, the public ownership of property, the efficiency of capitalism or the private ownership of property (the so-called market economy).

Any of the two systems can work very efficiently depending upon the mentality of the people, their sense of responsibility and commitment to duty. These working norms which promote efficiency and progress are lacking in Ghanaians occupying positions of responsibility either in the administration or the economic units created by the government. The main problem in Ghana is, therefore, psychological. This needs thorough research by social scientists.

Before analysing some of the problems inherent in the statement of the Governor of the Bank of Ghana, let me take the opportunity to clarify some of the things seen as mystical about the concept of socialism.

Because in Ghana, and in Black Africa in general, when people say that they do not want socialism it is assumed that they understand what capitalism is all about.

Socialism, like capitalism, provides the principles and norms which govern the ownership of the means of production and distribution in any society and the form of political system that supports that form of productive activity. Socialism thus calls for the total mobilisation of all the resources in any developing society, both human and material, where capital accumulation has been lacking, in order that, using the state apparatus, these resources are directed into the major areas of the economy so as to bring about sustained growth under state control.

In a developing society like that of Ghana, people say that the state should not actively play a role in mobilising resources for investment purposes and that everything should be left in the hands of the so-called private sector, with even selling the established to the private sector because they would be efficiently managed...

This is why socialism is seen as the public ownership of property. It is the aim of socialism to try to abolish mass poverty or to reduce inequalities to the barest minimum. But it does not wipe out classes. Compared to two hundred years of capitalism, socialism has proved that it contains great energy and drive. Socialism is a system that reduces as far as possible cut-throat competition.

The success of socialism in the world (64 years in Russia, 35 years in China, 30 years in North Korea, etc), gives it the appeal and mesmerism it has got in the developing nations. In fact its prestige rose high in the world when, 22 years after the socialist ideology had been applied in Russia, productivity rose so high and rapidly that, USSR as the first socialist nation in the world, passed through the second world war and emerged triumphant, becoming a world power in the process.

I cannot treat socialism and leave capitalism alone. It has to be dealt with, much more so because the strong believers in orthodox capitalism are now mainly located in the Third World countries. In Africa, the orthodox believers are found mainly in Ghana, Nigeria, the Ivory Coast and Kenya. Yet, in their evolution, they have imbibed a lot more from the socialist theory, becoming in the process welfare or social market capitalism.

The definition given above in the case of socialism befits capitalism. In the case of capitalism, the ownership of the means of production and distribution not only the means of distribution without production as the enterprises the state has African capitalism tends to be - is supposed to be in private hands. To distribute the goods it must be produced first.

Capitalism operates through what is called market economy, with competition as its major element, using the price mechanism to let factors of production and distribution to find their own levels. But the price mechanism is only a theoretical thing. Its correct operation calls for perfect competition. Perfect competition creates more problems than solve them. In the early stages of capitalist development, when the laissez-faire (let things find their own way) theory operated, capitalism suffered more crises than the case should have been.

What I want to establish is that prices in a modern economy are invariably controlled either by the state or by monopoly companies or public bodies. It is therefore wrong for the Governor of the Bank of Ghana to believe that the deregulation of prices by the government would boost investment through the creation of incentives and the efficient use of inputs. In fact, the opposite thing would be the case.

If people obey or keep to price levels set by the government which guarantee imperfect competition, then the expectation of profits which would be relatively high, would give an incentive for people to produce. What has been happening until now is that, owing to the scarcity of goods on the market, people have used the black market to bring in the needed goods, bribe their way through customs and then sell them at any price. Since the goods are lacking, what becomes available obeys no price control, thus the windfall profits made by illegitimate importers and the high prices of goods fuelled by the black market.

In a developing society like that of Ghana, thinking that the state should not actively play a role in mobilising resources for investment purposes and everything should be left in the hands of the so-called private sector, with even selling the enterprises the state has established to the private sector because they would be efficiently managed, is against the sense of history in the context of modern capitalist development and in our own historical development. One of the keen observers of the African scene, Michael F. Lofchie, has correctly stated that: "The presence of social welfare concepts in the political culture introduces the most difficult set of political issues into political process from the very moment independence is achieved. Moreover, since African societies do not often include autonomous economic elites of sufficient magnitude to stimulate industrialization, the state is compelled to function as entrepreneurial force".

Governor Addo says, and I quote: "Some of these bodies (meaning the state enterprises) could be privatised to make them more efficient". To create the conditions leading to privatisation, he advises the government to withdraw subsidies to those bodies in order to augment government revenue. In the first place, most of the parastatals have been turned into co-operations, which means that they should operate for profit without government subsidy and control.

If they have not operated efficiently until now, then it means that the rate of corruption in those co-operations is high. And if the government has not forced those co-operations to operate profitably, but has continued to give subsidies to support unprofitable operations, then the government must be blamed for sustaining inefficiency in those bodies.

In our historical context, especially after 1966, most of the state industries have been privatised. When Ghana had concrete direction and scope under the socialist banner, development, that is, industrialisation was rapid. This Governor Addo recognises in his statement. After 1966 when the peripheral capitalist ideology dominated the situation in Ghana - 18 years now - Ghana has been subjected to more woes than it had ever before been the case.

For eighteen good years, the capitalists in Ghana have had enough time to prove their mettle in order to make the operation of the economy more efficient. If that has not been the case, then what kind of efficiency through privatisation is the Governor of the Bank of Ghana talking about? Ghana after 1966 has been purely a peripheral capitalist country. Yet, Mr Addo says: "Private entrepreneurship could create a new era of investment in Ghana". Why have the Ghanaian capitalists waited all that long to realise that Ghana needs "a new era of investment"?

No government since independence has discouraged private people to invest. Why have individuals with capital not invested? Indeed, the volume of private capital available in the country is very minimal. Those who have the capital to invest fear the long-term risk involved. The Ghanaians with capital expect immediate returns to their money without courting any risks.

That is why there is concentration of activities in the distributive sector (buying and selling). On the other hand, Ghanaians do not trust each other. Lack of confidence among Ghanaians prevents those with capital to pool their resources to undertake greater economic projects. So that typical Ghanaian businesses privately owned are very small in size, employing mostly between five and twenty people. So that their contribution to solving the unemployment problem has been very minimal.

How can a capitalist think of capitalism without risk? Risk is an inherent part of the capitalist process. Yet Ghanaians want to be capitalists without taking any risk. Such being the case, it is only the state which has the power through taxation (which affects every person in the country) to marshall the needed resources for investment purposes.

To be continued next week.

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