Kenyan Political Economy

A full appreciation of the Kenyan constitution requires an understanding of the economic as well as the political consequences of our Constitution. Every economy is a political economy and the enormous inefficiencies and inequalities of the Kenyan economy are as much a result of the political system as on the economic system.

Both economic inefficiencies and inequality in Kenya can be attributed to poor democratic norms.

Growth alone is not sufficient to reduce poverty and inequality; benefits from economic growth have bypassed a majority of Kenyans. GDP growth has been accompanied by increasing internal inequality and a widening gap between rich and poor. This means changes in social and economic processes are necessary to reduce poverty and not only growth, but attention to the distribution of benefits from growth is essential to combat poverty and inequality.

The story of Kenya’s inequality and general political economy dates back to colonial times. The British colony extracted rents by expropriating land, creating reserves for the natives and white settlers and enforcing commodity monopolies of cash crops. This created a powerful economic class on the one hand and squatters on the other hand. Since pre-independence commercial sector was dominated by farming, there was a fear the economy would collapse upon departure of settlers. Therefore, the World Bank, nudged along by the British lent the Kenyan government funds to buy land for settling landless people, but unfortunately it wasn’t sufficient and it triggered a land buying binge that favored political elites, senior civil servants, loyalists and business people. Since, the economic and political structure at independence was founded on settler economy, the transfer of land meant also transfer of both economic and political power to the new land owners. An oligarchic economy emerged as a result. This order created institutions that supported inequality producing a political economy that involves competition for government rents.

Where did the ethnic oligarchic power emanate from? At independence Kenya had two major political parties; KANU and KADU, though they represented tribes they had ideological differences. KANU consisted of the larger communities who favored centralization, while KADU had leaders from the smaller communities who favored decentralization. KANU led by Kenyatta won the first elections, formed the government and worked hard to consolidate power and later turned Kenya into a one party state. A new constitution with a strong presidential system and a weakened National Assembly was adopted through parliament. Kenyatta ensured his own role in the government by installing loyal tribesmen in the military ranks, civil service, banning and eliminating politicians who weren’t loyal to him. Powerful elite of civil servants, business people and politicians developed. KADU party was later assimilated into KANU despite the fact it was ideologically different by offering its leaders senior positions and access to land opportunities. If Kenya had maintained the ideological differences between the two, we would have had issue based parties instead of tribal outfits. To our detriment post-colonialists maintained the British divide and rule policy and with time it cemented divisions. Furthermore, the main method of governance during colonial times and since then has been to pacify would be new players in the society by incorporating them into accepted orthodoxy and institutions, which until recently significantly reduced incidences of conflict. Moreover, the political elite battle for power amongst themselves instead of holding open elections within the ‘parties’ or coalitions. These old elites retain their positions during the electoral process, they transfer resources geared towards past interpersonal networks to maintain the status quo in parliament, and this reassignment is still considered an exercise in democracy. This in effect disenfranchises majority of the people because there are few real choices, making a mockery of representative democracy. The elite are also able to structure the political institutions to propagate their power. They (ethnic elite) easily do this because they seem to have a shared social identity and a sense that they are different from the rest of the society. They have interests in common. They are able to take necessary action to improve their status and power because of common interests e.g. President Kibaki who was elected on the promise of change and reform declared that Moi would be left alone – he was allowed to escape retribution and rewarded with a pension.

The skewed distribution of political power was shaped by factor endowments – land, labor, capital and entrepreneurship – in the country, as farming was the only economic activity the settlers could undertake, the British used force to acquire land and labor creating a hierarchical society based on extraction of rents from Kenyans to generate revenue. By monopolizing assets and political institutional power, the British created high levels of inequality. This circumstance was reinforced if the area had a climate suitable for agriculture like Central and Rift Valley regions because this led to creation of reserves and squatters.

Constraints on the power of elite to get what they want is limited by constitutions or the ability of people on the margin to take up arms and fight it, but as every major community is represented in the elite group, this threat is diminished and as previously noted the powerful elite employ co-opting and pacifying tactics on would be opponents. This is made worse by weak state institutions that lack capacity; for the state to be a bulwark against abuse it needs a set of institutions that would enable it to enforce property rights, regulate and structure markets and implement its policies.

Inequalities:

Inequality in Kenya is rooted in history and the political and institutional structures bequeathed by the colonial government. Inequality, access and distribution of income are related to the distribution of assets namely land and capital, return on those assets and the relevant policies. This is because return on assets is not necessarily determined by competitive markets. Market institutions are influenced by public policies which are in turn influenced by societal power relations.

It’s no surprise entrepreneurship and labor are lowly valued, if the labor market was competitive and entrepreneurship was rewarded the entrenched power structure could be dismantled. The elites and government bureaucracies resist entrepreneurial activities that could redistribute power. Vested interests protect private and public monopolies. There are systemic obstacles and huge barriers to entry. Likewise distribution of assets takes many forms including exchange, inheritance, but also accumulation and expropriation. Accumulation of land as it happened before and immediately after independence made sure that a majority of people had no choice but to work for the land owners at paltry rates. This set a precedent that has been replicated in various sectors ever since.

Specifically, inequality after independence stemmed from two related origins: the monopoly of power by an elite and opportunities created for transfer of public resources to private hands. Largely speaking an individual can acquire wealth by either capturing existing wealth through transfer activities i.e. cronyism, accumulation and expropriation or by new wealth through productive activities. A major weakness of our institutions including the constitution is that they established incentives for non-productive transfer activities. For a country to grow it needs to invest its savings in productive projects and also innovate in the sense of changing habits of mind in the society. Executive power motivated by special interests found it relatively easy to control parliament and judiciary at the expense of outsiders. Questionable banking schemes were promoted; parastatals funds were raided with executive assistance, in order to reduce the debt obligations by private citizens. Commercial restrictions and dubious procurements were commonplace as the executive responded to the interests of organized elite while ignoring the concerns of the general consumers.

A primary purpose for establishing government is to outlaw private theft. But the power that government possesses to enforce laws against private theft is a power that affords select individuals or groups the opportunity to benefit through public theft. Vague and ineffective limits on government authority have made it easy for transfers through political activity. A good constitution should establish a climate in which it is difficult to profit from cronyism, it should also create a setting in which productive effort is rewarded. This could be achieved by providing protection against the arbitrary taking of private property by both state and individuals, providing strong incentives for people to apply themselves and their property diligently. Respect and protection of private property rights forms the backbone for protection of public resources and individual liberty because property rights dictate clear definition of ownership and titling of assets allowing for transparency.
Persistent inequality has been reinforced by the state due to the government hold on the economy. A system of price communication and market interaction has been lacking because prices of vital sectors are subject to government actions for example grains market is distorted by government, energy, health care and education too.

Economic Inefficiencies:

The biggest trouble encountered by Kenyan economy is low investment. Capital outflow of ill-gotten wealth during Moi’s time is part of the reason for low investment. Another reason for low investment is poor infrastructure which is as a result of public funds being diverted to private hands. For his part, Kibaki’s administration has overseen some infrastructural improvements but this has entailed converting stakeholders -existing capitalists – from opponents to supporters of reforms which has required creation of rents to entice them. Kenyan economy has been growing, mainly because of developments in technology and globalization, these are demand forces but the best innovation would be a change of rules which would force society to look at resources in a different way and apply them differently. Any new business in Kenya is usually taken up by a coterie of politicians and industrialists who due to easy access to capital and information monopolize the market. Our economy doesn’t grow because resources are not allocated to their best use, the capitalist are political cronies who expend money to projects without caring about efficiency.

Due to the fact that the Kenyan government is fiscally poor and its only leverage is its ability to create rents through enacting regulatory restrictions or subsidies, since independence, the government has dealt with stakeholders by way of either expropriation or co-optation. Kenyatta’s administration applied both, Moi’s mainly expropriated, while Kibaki’s mode of operation is co-optation.

Another economic inefficiency is lack of social capital. Corruption and dishonesty are rampant in Kenya, and it beggars the question: who is responsible for the desertion of honesty in the public sphere? Political leadership circumvents the rules, and the media distorts messages, sensationalizes trivial occurrences, takes facts out of context and more importantly fails to cover complex matters in depth. The public for their part unquestioningly consumes what the politicians and media sell even when it doesn’t meet minimal standards of integrity. Dishonesty and therefore distrust are entrenched in Kenya with the resulting breakdown in democracy, freedom of choice because free choices cannot be made in the absence of accurate information. Distrust has paralyzed human agency by making the public conformist, adaptive to any conduct, routinized and even passive. Social capital has thus been eroded, leading to isolation, breakdown of associations, few interpersonal networks and populism. As a result of isolation, individuals and groups feel alienated leading to a search for alternative, often illicit identities like gangs and vigilantes. Kenyan communities have mobilized defensive attitudes like hostile stereotypes, rumors and prejudices which only give communities a siege mentality. Consequently, the transaction costs due to constant vigilance are raised and any possibilities of cooperation are hindered. This environment maintains the power structure because there is no competition within the society.

With the new constitution, talk of societal reform is rife but it’s unlikely under current circumstances for structural reform will be generated by political leaders themselves or that societal demands will be enough to bring change. Societal pressure would have to be strong enough to overcome resistance from political, bureaucratic and business elites who have benefited from the current system. Moreover, the scale of corruption and cronyism in Kenya is such that controlling it will mean changing the power structures and the manner of accumulating wealth entrenched since pre-independence that has produced a highly unequal society, skewed incentives and weak institutions. This even with the new constitution will prove difficult because the proposed structures will increase the size of public sector, it also emphasizes equitable distribution as a way to correct historical inequalities instead of as the principle that underpins efficient allocation of resources and growth of the economy, it’s also vague on economic freedom, and not enough emphasis on transparency.