Ethiopia’s capitalist turn

In a break with previous administrations, Ethiopia's new Prime Minister has declared that he favors free market capitalism as his preferred economic model.

Room with a View 37 - Addis Ababa April 2018. Image credit Goggins World via Flickr (CC).

The speech by Ethiopian Prime Minister Abiy Ahmed’s at the recent 2019 World Economic Forum in Davos was not without irony. In his speech, Abiy full-heartedly embraced the neoliberal doctrine of the free market—improving the “ease of doing business,” the power of the private sector, open markets and integration, including Ethiopia’s commitment to accelerating accession to the World Trade Organization.  (Abiy repeated his commitment to capitalism as his favored economic model in an interview with the Financial Times at the end of February.)

Only seven years ago, Ethiopia’s former Prime Minister Meles Zenawi hosted the 2012 World Economic Forum on Africa in Addis Ababa where he told the financial elite, quite frankly, that neoliberalism was a totally failed project. Then, in 2012, Meles rejected neoliberal approaches to development in favor of his version of the “developmental state” where the state sits, in theory at least, in the driver seat of development, with ownership over key sectors along with a tightly regulated private sector that serves to advance the overall national development agenda.

There may be a sense among many Ethiopians that this is not the time for grand ideological debates. The country is growing by about 3 million children a year, an estimated 45 per cent of the population are under the age 15 and approximately 600,000 people enter the labor market every year, at a time where about 1 in 4 young people are already underemployed.

However, what neoliberalism seeks to mask, in Ethiopia as much as anywhere else, is the fact that there is more than one way to create jobs and economic development—that there is, in fact, an alternative. It is the essence of neoliberalism that it equates what’s good for General Motors and Volkswagen with what’s good for everyone, since wealth, supposedly, trickles down.

However, as the past decades of neoliberal globalization have shown, growth can be extremely unequal, creating the kind of misery seen in the growing number of urban slum dwellers—according to the United Nations more than one billion people now live in the slums of the cities of the South. On the other hand, 26 billionaires now own as much as the bottom half of the world population. It should not come as surprise that the largely unelected financial elite in Davos, including many of world’s top billionaires, were very pleased with Ethiopia finally seeing the light of the free market.

While Meles’ authoritarian project—like so many other regressive distortions of Karl Marx in the 20th century—was also, in many ways, a failed and inhumane project, we should remember his (and Marx’s!) insistence that the economic is always political and, indeed, ideological.

Therefore, one of the unanswered questions in the current euphoric discourse about Ethiopia’s democratic transformation is who gave Abiy (as this is becoming a Meles-like one-man-show) the mandate to put Ethiopia on a path to free-market capitalism with a potentially much reduced, or at least altered, role for the state. More importantly, we must ask the social question: in whose interests are reforms being carried out? What kind of Ethiopian society did people actually fight for?

For sure, the mostly, rural anti-government protesters who ultimately brought down the Tigray People’s Liberation Front (TPLF)-dominated regime did not protest under the banner of the hammer and sickle. Yet, it would be a mistake to ignore the underlying social nature of these protests and reduce the uprising primarily to an expression of backward narrow nationalism or Oromo ethnic chauvinism. From the beginning, the protests that broke out in 2015 among the Oromia region’s rural and mostly impoverished youth included struggles over class and identity, challenging multiple forms of oppression, exploitation, and discrimination.

Protesters carried out many attacks against factories, especially joint ventures between foreign investors and local elites which the protesters accused of land grabbing and not providing decent job opportunities to locals. The uprising always included calls for political rights as well as demands for economic rights and economic participation.

Upon coming to power last year, Abiy has implemented nothing short of a political revolution from within the one-party state. What remains less clear is whether Abiy is willing to take on the social question too. In the absence of a clear answer to this, progressive forces in Ethiopia must exploit the political space to ensure that liberal democracy does not become a Trojan horse for restructuring the country’s political economy in a way that serves the interests of the elites and the country’s tiny middle class at the expense of Ethiopia’s majority poor.

The local media coverage of the opening of Pizza Hut’s first women-only operated restaurant in Addis at the end of January, gave an eerie insight in the ideological convergence of the business elite and middle class that dominates the ongoing reform narrative.

At the opening event, Michael Ghebru, CEO of the Pizza Hut franchise in Ethiopia, announced the “initiative was inspired by the recent reforms made by Prime Minister Abiy Ahmed. This portrays the growth and progress we have made as a society to promote gender equality in Ethiopia.”

Nobody cared to ask the CEO how much the company actually pays its female workers. Do their female workers have a right to paid maternity leave? Do their workers and their workers’ children have health insurance? Do they have the right to organize at their workplace? Ethiopia’s media may also ask themselves whether the best use of their new freedom is to celebrate Pizza Hut, where a pizza sells for about US$15 in a country where 25 million people live on less than US$1 per day.

While Pizza Hut may be a matter of taste, real class antagonism becomes visible as Ethiopia seeks to capitalize on the country’s low wages as its “comparative advantage” in the global race to the bottom.

When the International Trade Unions Confederation (ITUC) denounced exploitative wages in the manufacturing sector in Ethiopia, local newspaper, The Addis Fortune, was quick to warn that it’s too soon to ponder wages since “[t]he one prime opportunity the nation can offer investors is low-cost labor, and taking that away will only have negative consequences.”

Indeed, it may be too soon to ponder the wages of Ethiopian workers for the professional free-marketeers in Addis, but it may be a rather urgent matter for the millions of rural poor, including women, who will be forming the cheap labor army for the industrial parks, construction sites and service industries.

From a neoliberal point of view, the price of labor in the form of wages, like any other commodity, is set by the market forces of supply and demand. According to this logic, current wages in the country’s textile industry of around US$2 per day (less than 900 Ethiopian Birr a month) reflects the large supply of labor in an environment of limited demand for labor.

In reality, however, wages are the outcome of social struggles, expressing the relative strength of workers through trade unions and other labor market institutions such as an enforceable living wage and the right to collective bargaining—essential human rights. A human rights rights discourse that ignores fundamental social and labor rights and focuses on political rights only is the ideological underpinning of a reform project for the better-off.

Similar to the re-distributive struggle over wages—which comprise the portion of value creation that is given to workers vis-à-vis the profits of business owners—is the question of who will finance the social welfare state.

For better or worse, over the past twenty years, poverty declined from 45.5 percent in 2000 to 23.5 percent in 2016, despite a population growth from 65 million in 2000 to 100 million in 2016. Ethiopia has one of the lowest GINI coefficient (which measures income inequality) in Africa, much lower than neighboring “free market” Kenya. While questions about the quality remain, large scale and pro-poor investments in social services ensured that primary education reached 100 per cent, health coverage 98 per cent, and access to potable water 65 per cent. Ethiopia also has one of the largest social protection program in Sub-Sahara Africa, providing a social safety net for millions of the country’s ultra-poor.

The reality is that with a population set to nearly double over the next 30 years, lifting this very large population out of poverty will also remain a historic welfare task for the Ethiopian state for generations to come. If left solely to the “free market” and the private sector, Ethiopia may well end up with a development strategy that will leave tens of millions of people behind (including growing urban slums and Nairobi-like crime rates). If wages remain low and employment largely informal, even effective ‘job creation’ will nit reduce poverty but mainly increase inequality.

If Ethiopia wants to ensure that economic growth and development are truly broad-based, it will need to continue investing enormous amounts of public funds in social services and infrastructure. While these complex reforms will of course require a very high level of technical expertise, at the core, these reforms remain political and the country will have to decide over questions such as whether Ethiopia really can afford tax holidays for investors or whether these taxes are precisely the kind of revenues required to finance inclusive development.

In 2017, business lobbyists in the US essentially wrote themselves a new tax code that lowered the corporate income tax from 35 per cent to 21 per cent, costing the state revenues of trillions of dollars over the next decade. The Act, which was called “Tax Cuts and Jobs Act,” used the ever-same argument that lowering tax will create jobs.

With Ethiopia currently undergoing significant economic reforms we should ask Dr. Abiy who is driving this agenda (are there any business lobbyists or global billionaires involved?) and who will benefit. Will the new tax code ensure that enough of the wealth created in the country will be redistributed to those who will not be able to lift themselves out of poverty in the foreseeable future?

The quietness on the social question in the current debate on political reform may explain why the country’s wealthy and middle class sat back rather quietly for years when their fellow country men and women in the rural areas were imprisoned or killed while fighting for political and social change (there were almost no protests in Addis). Maybe, after all, many of Ethiopia’s professionals and business owners do not fundamentally disagree with the country’s existing class relations and related inequality which allow nearly every middle-class household to employ a live-in maid for a pitiful wage or enjoying the cheap services of hairdressers, car washers, waitresses and others.

While Ethiopia’s urban elites and their diaspora allies are largely ecstatic about their pop star prime minister and new political freedom, progressives must remind them that it was not their revolution and that people did not sacrifice their lives for the prospect of free trade that may make imported cars, wines and flat screen TVs more affordable for the few.

Italian political theorist Antonio Gramsci wrote in the 1930s that the “crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.” While Ethiopia must deal with the many morbid symptoms it is currently experiencing, including new forms of conflict and the displacement of nearly 3 million people, it must focus on tackling the underlying causes of poverty and widening inequality. Forgoing a democratic debate on the kind of economic model the country will pursue, could result in Meles’ development without democracy becoming Abiy’s democracy without development for the large majority of the country’s poor.

Further Reading