Why populism produces poor economic results

Political economists have been grappling with the linkage between institutions and development. Well-known books on the subject have titles such as “Do institutions cause growth”? and “Why do nations fail”?

The consensus view is that socio-economic development is not so much the result of geography, cultural or religious values or a large accumulation of human, natural and social capital, rather, the presence of good, effective institutions.

Historical legacies matter in understanding the fortunes of contemporary nations. Those legacies are transmitted through institutions. Furthermore, the quality of government is a key foundation in determining the prosperity of nations. High quality governments act impartially, are non-corrupt and use resources efficiently, producing positive economic results.

It had earlier been thought that being democratic would necessarily lead to economic prosperity. Indeed, this was a central argument of the Washington consensus.

Embrace globalisation

All that was necessary for nations to become more prosperous was to democratise and embrace globalisation. It was believed that undemocratic nations would soon reach a limit of growth. Moreover, as middle classes expanded in those countries, they would demand more rights. But it turned out that electoral democracy does not really have a cure for systemic corruption.

There are plenty of countries that have regular elections and are highly corrupt. Nigeria and Kenya are good examples. The Kenyan head of civil service recently complained that corruption has reached industrial levels. In addition, democracy alone has in many instances been unable to increase human well-being. Stagnation in productivity has led to flatlining of real wages.

As a result, many populations are angry.  It has proven fertile ground for populism, which has made a strong comeback in the last decade. Populists both on the left and the right are coming to power by rallying “clean-hearted” people versus “corrupt, self-serving elites”. That is why Trump was draining the swamp. That is why the Kenya Kwanza regime pitted hustlers against dynasties.

What do populists do when they get to power? First, they “colonise” the state. They do so by appointing high numbers of their followers into government. Populists generally argue that a nation’s establishment elites are a corrupt and self-serving cartel that does not represent the interests of ordinary people and are indifferent to the common good. As a result, anti-establishment politics is core to populism. This hostility locks out expertise, preferring and rewarding loyalty.

Populism demands a direct connection with its supporters, unmediated by political parties, civil-society groups or the media. It is no wonder that the KK regime is hostile to the media, civil society and political parties.

What makes populism risky and dangerous is the reliance on rhetoric to hold on power. It is divisive and thrives on conspiracy. Lacking an underlying economic philosophy, it looks for enemies everywhere, is intolerant of opposition, and plays up external threats. Populist governments have a tendency to become brutal and repressive in response to criticism of policy failure.

Populism almost always results in a low quality of government because the careers of the civil servants and those of the politicians are intertwined. Because of this, people in senior government can often go along with a bad or poorly conceived policy. That is likely the case with the County Industrial and Aggregation Centres. Everyone is applauding the groundbreaking, but no one is doing the real work of looking for the companies that will set up shop in them.

Social welfare

No matter how many formal constraints we impose on our rulers, they will always have the possibility to take opportunistic actions that benefit self or constituency at the expense of social welfare. The reason is that politicians control all the residual or extra goods that any policy generates. Consider a road such as the Kenol-Marua. It contributes to social welfare of the nation generally. But it also delivers specific benefit to Muranga, Kirinyaga and Nyeri where it is located, to the contractors and sub-contractors who are working on it, and to the workers involved.

When they decide on projects like this, politicians have the opportunity to manipulate them for the benefit of themselves or their cronies.

The quality of democracy is not the same as the quality of government, and democracy in itself is not a cure against low quality of government. Most new regimes, and this is true of KK, fall into many temptations. First, they reward political followers with public sector jobs. They allow corruption to raise funds for campaign financing.

Democratic procedures do not always produce decisions that are “true” and “fair”. True or right decisions presumes the use of knowledge and expertise to arrive at and pursue, the right policy. The absence of it can have devastating effects. For instance, Thambo Mbeki’s HIV/Aids policy certainly cost the lives of many South Africans.

Fairness could be looked at from a human rights approach. We have a regime in power through a democratic albeit it flawed, process, but they disregard the Constitution routinely and trample on our rights, responding to our right to demonstrate by shooting citizens

@NdirituMuriithi is an economist