The New Development Paradigm

Inspired by the current political change in Ethiopia, economists, political scientists and ordinary people have started to search for a new strategic economic plan for the country. After reading every thought-provoking suggestions made by others, I feel discomfort to remain silent on the subject which I closely studied. The present and future economic situation of the country is such that it compels us to spark off a debate on issues related to strategic economic roadmap; it is high time now to embrace a new direction. The suggestions made so far signify the difficulties faced while searching for new strategic economic roadmap for the country. But, there should be a consensus on the need for new economic roadmap to begin with. We need to discuss on weather a new paradigm is required or is there still a space to rectify the current model. There are some researchers who expect that the current economic development model, popularly known as developmental state, can work, if and when, its efficiency is improved concurrent with the ongoing democratic reforms in the country. By virtue of their application democratic reforms brings about transparency and accountability. These virtues can rectify the management constraints and institutional incapability of developmental state model and thus there is no need for a paradigm shift. This view (long live the old model) is shared by others who benefited from its formulation and implementation. There seem to be some politicians who still accept the continued use of the model for a different reason: lack of finding or envisioning an alternative paradigm.

I am familiar with the developmental state model since its inception. Initially it appeared to me as a better choice than the no design state of condition existing at that moment. As one who study the effects of rapid population growth (mass unemployment, sever scarcity in basic needs, and uneven urban development), I was interested in and open to any economic model that declares to solve the problems. Population growth perspective helps to understand not only the day-to-day resource gaps and operational activity of the government. Its demographic based economic growth projection model, on the other hand, helps to anticipate the future as well. In my analysis, I have always in mind how to bring the future into present.

Initially when the developmental state model was formulated around at the turn of the century, I was suspicious of the motive and orientation of the model. The developmental state model was conceived for the purpose of getting political legitimacy at home (developmental state instead of democratic state) and as a means to find new and alternative non-west alliance at global level. I saw a discrepancy between what the nature of the population growth economy demands and the motives and objectives that the model envisaged to accomplish. The model was designed to increase the export capacity of the state and its capability to finance centrally planned projects (developmental state features). Boosting the economic capacity of the state, if at all it can be done, does not mean solving population growth effect problems (mass unemployment; sever scarcity of goods and services, unbalanced regional development and local economic transformation). We all know that as to who has benefited from the state’s aggressive intervention in the economy. The arrest of the managers of Metals and Engineering Corporation on the allegation of corruption is a conspicuous example of model failure.

To begin with, there was a problem of design even at the stage of its formulation. I was critically examining the outward orientation of the model (export-led industrialization), the priority and alignment of the economic sectors, on conditions to build developmental state model, carrying capacity of the Ethiopian economy, youth unemployment and employment creation policies, local and regional development, and came to know what is in the name of developmental state, among others.

The Ethiopian version of developmental state model does not have only mismanagement problem. The problem is more than a question of efficiency and technicality. It is a principle of design (development approach, direction, priorities, organization and implementation of policy instruments), and level of state intervention (order of precedence on who leads development in the country). The fact that there is a political commotion in the country shows the failure of the developmental state model. The present popular movement aims to change not only authoritarianism but also its economic foundation. Authoritarian state can survive if they have well designed economic transformation policies as in the cases of China and other Asian countries. But in Ethiopia’s case, this is not the case, which makes the Ethiopian developmental state model, fake. There never was an economic roadmap that could solve the problems of mass unemployment, sever scarcity of goods and services, and unbalanced local and regional development.

So, what is or should be the alternative strategic economic roadmap for Ethiopia? I suggest preparation of bottom-up industrial policy strategy document to develop the local value chains and transformation of the local economy. There is no economic growth and transformation without local-based and people–centered industrial policy. Bottom-up industrialization means the establishment, operation and agglomeration of light and small-scale manufacturing industries by market forces with the aggressive support of local governments up to the lower level. The idea of bottom-up industrial policy is to make every regional states rely on domestic economic growth factors (entrepreneurial talent, independent technology and free capital accumulation) to derive industrialization. Domestic economic driving forces are cultivated by market oriented reforms and local institutional innovations.

Bottom-up is not only hierarchical. It is a concept which refers to place (the question of where to industrialize and why there). The rationale for industrialization is not based on “one size fit all” places as in the case of developmental state model. The bottom-up policy stresses local specific interventions that are necessary for exploiting the full potential of the local endowment structure. To upgrade the local endowment structure, to uncover opportunities and risks, the local government should conduct feasibility studies. This study helps the local government to figure out which industries to support within specific area for the purpose of local economic transformation. The Integrated Agro Industrial Park project in the state of Oromia is best example of bottom-up approach to local economic transformation.

Over and above the establishment of agro-industrial parks and cluster promotion, the bottom-up industrial policy identifies instruments that promote systematic and harmonious relationship between local stakeholders (private sector, the local government and the youth or part of the population that is growing rapidly). The formation of association of local entrepreneurs, workers and youth helps to build relationships of trust and interdependence among stakeholders. Unexpected consequences of interventions can easily be understood and rectified through applying a systematic and network relationship among local actors.

For bottom up policy to work, it is necessary to get top-down support. Local economic transformation has to be integrated with national and regional development programs particularly in the areas of private sector development, financial sector development, and public investment in infrastructure. The central government has to ensure domestic macro-economic and financial stability and sustainable public debt positions.

7th Year • Dec.16 – Jan.15 2019 • No. 69