Managing market economies might look easier compared to other economic systems, like centralized ones. Nonetheless, there are certain market associated problems that can be quite daunting. We will look at some issues that are creating havoc all over the world, Ethiopia not excepted. For example when an economy becomes more ‘free-er’, (there is no free market economy in the world) i.e., less intervention by the state and relatively easy entry to a particular market sector/place, competition between operators become quite severe, resulting in a lower margin of profit for all. Serious accumulation cannot be had in such a scenario. Contrary to common beliefs, lucrative accumulation is possible only when the market is less free and not flooded with all sorts of competitors. As seasoned capitalists know, only monopolistic arrangements facilitate real accumulation!
In the last decade and half, Ethiopia’s economy managed to deepen market operations. The thumb rule here is; the bigger the private enterprise, the more dependent it is on the state (at all levels), particularly on the higher echelon of the politicos. In all honesty, there are literally no major private entities that are significant operators in their respective sectors outside of the politically favored businesses! The case of small and micro operators is a different story altogether. City, town and village traders have been popping up all over the place in the last decade and half. Those who made their foray into the various market sectors early in the game managed to derive continuous profits. Obviously, these circumstances encouraged many other operators to follow suit. As the market started to get crowded, margins started to fall and costs started to rise. During this same phase of generalized economic expansion, the state started to lay down institutional infrastructures to facilitate, amongst other things, tax collection. The government also started to automate cash points as well as promulgate laws to discourage tax evasion and avoidance.
In the meantime, Ethiopia’s largely inexperienced business operators, both within the formal and informal sectors, envisioned a scenario of accelerated profit growth and market expansion to continue ad infinitum without a glitch! When the going was good, capital accumulation, some of these novices thought, was the easiest thing on earth! Banks, as usual, were more than willing to lend, even though they could see clear trouble down the line. As rent seekers par excellence, banks were not going to spoil their day by being prudent and cautious when the country’s accumulation frenzy was at its phony peak! As competition intensified and profits started to shrink while cost skyrocketed, some reckoned, the best way to make real money is/was to either get connected to the power that be or try to beat the system altogether. Tax avoidance, by way of not using the government ordained cash register machines became one such epidemic! Results were obvious; growth rate in tax collection stagnated, if not worse. As a measure to rectify this unexpected deviance or shall we say defiance, the state decided to change tack.
On its part, the state has been increasing its payroll as if there is no tomorrow, to say nothing about its other considerable expenditures. Employing thousands of college graduates on a yearly basis is difficult by itself. Government activities require a continuous and significant increase in revenue collection. The refusal to pay (by many business operators) the assessed or estimated tax, in lieu of actual sales figures obtainable from cash register machines, says a whole lot about the general situation of tax assessment and collection in the country. May be it is time to rethink one of the obvious nature of market economies; not all businesses can survive regular tax payments! When the going gets tough, private operators try to survive by cutting costs and avoid taxation. In such a scenario, it is everyone that suffers, including the state. Profit tax will decrease, VAT will be neglected, unemployment will rise, etc. etc. The assumption the market is a panacea for many of our major problems is not well founded. A state must be allowed to balance and monitor economic activities, sometimes outside the logic of the market, despite the forced instructions of globally dominant interests. States must have pro-people policies that should override the narrow confines of the profit motive, when the need arises!
Any decent state must have a worldview that is grounded on the welfare of its people as well as the wider natural environment. Certain ill conceived economic fixations (useless growth, etc.) must be rejected in favor of science, logic and rationality. Obsessions with worn our and regurgitated ideologies, like ‘neoliberalism’, etc., must be discarded! See the articles next column on page 32,41&44. “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” Richard Buckminster Fuller. Good Day!