EPRDF’s Pro-Poor Policy: How Pro-Poor Can it Be?
Getachew Mequanent
This piece
is intended to stimulate an interest in the discussion of public policy issues
in Ethiopia. EPRDF prides itself as being pro-poor, which is also acknowledged
by the World Bank and other donors. One potential problem with a pro-poor
policy, though, is that it can create a perception that the state itself is a cash-cow, which means that
everyone wants to access the benefits while contributing little to the common
good. Such a policy cannot ensure feasibility in the long run unless it also
promotes fiscal discipline and citizenship responsibilities at all levels of
society. I touch on this issue taking the taxation of rural producers as an
example.
Pro-poor
policies were often associated with welfare economics, that area of economic
thought which advocates the distributive role of state in society. This theory
got the attention of policy-makers in the West not necessarily because, as my
professor once noted, capitalism had a “human face”, but mainly because it
created a political advantage for the capitalist class. At a time of the
emergence of capitalism-communism ideological rivalry and with radical
political cells beginning to agitate a socialist revolution, it was very important
to keep the working and lower classes happy, thereby denying the radicals any
political and moral high ground. Western governments would thus develop
progressive policies that facilitated labour negotiations for good wages and
financed social protection programs to aid the poor. The problem today, though,
is that, as baby boomers retire in massive numbers, the costs of social
programs are skyrocketing.
The
pro-poor policy of Ethiopian government is not the result of welfare economics.
It is the result of revolutionary democracy. EPRDF seized power and imposed its
pro-poor ideology on the state. But doing this was never easy. In the 1990,
EPRDF officials earned a name for remaining adamant about the demands by the
World Bank and IMF for changes in certain policy areas, most notably state
ownership of land and state intervention in the economy. They argued that privatizing land would encourage
rural people to sell their plots and migrate to urban centres. In the absence
of capacity to accommodate the needs of rural migrants (numbering in millions),
the result would be social and economic crises in urban areas. Regarding state
intervention in the economy, their argument was that, considering the
structural weaknesses of the private sector, the state must be responsible for
delivering financial packages and technologies to rural areas, so that
subsistence farmers could improve the productivity of their assets. These two
arguments made sense. Donors agreed to finance EPRDF’s plans.
Things are
different today. The World Bank, IMF and everybody are talking about pro-poor
economic growth. What is more, according to the United Nations Commission on
Trade and Development (UNCTD, 2007), poor countries will need development
elites that are capable of creating a “symbiotic relationship between the
political and bureaucratic elite and entrepreneurs” (= market friendly states). UNCTD also suggests
the developmental state model (recall that Meles Zenawi wrote a paper which discussed
the role of developmental state). All this means that Ethiopia’s revolutionary
democrats are smiling. Oh yah, things just keep getting better.
Yet good
ideas work well if they encourage creativity and innovation. Taxation is an
example. In my presence, during a gebya
(market) day in Gondar, rural Kebele officials began chasing around people to
have them pay a sport tax (to finance student athletic activities in the Amhara
Region); this is in addition to the annual tax payment to the state. One young
man got too irritated and began complaining why only hard working farmers pay
taxes. He alleged that he had seen poor people drinking tela (local liquor) and even he claimed that, hours ago, he saw a
poor woman (whom he knew) entering a korefe
(tela) bet to drink. If she
could afford to buy korefe, she
should then be able to pay taxes, according to this young man. He had a good
point. The poorest of the poor must have a role in the development process. For
example, even if they cannot pay taxes, poor households can contribute in kind
such as maintaining facilities or, in the case of urban low-income or
subsidized housing areas, greening the neighbourhoods and cleaning the streets.
In general, my point here is that Ethiopian producers should pay more in taxes,
given that they are now selling a chicken for 25 Birr, sheep 150 Birr, one madega (30 kg) teff 90 Birr, and so on.
Sales like these should be taxed up to 10%. And you do not need to have a
university degree to enforce taxation in the local area. Every gote (sub-Kebele) has a state agent,
militia or cadre. What is needed is an enactment of a law by national, regional
or Woreda government requiring every household to report everything for sale to
Kebele state agents. For example, if I want to sell a goat, I will negotiate
with the local agent (the negotiation takes no more than 10 minutes) the tax payment on the estimated
sale of that goat at current market price. Whether or not I will pass on the
tax to consumers (by raising the price of that got) is another matter, or
perhaps it will be left for the free market to determine. I know I am not
suggesting an innovative taxation method here. I am providing an example of
what can be done. Corruption, misreporting, hiding and other problems are
eminent. But different levels of government will still be able to collect money
and this will gradually increase as people realize their citizenship
responsibilities (obligation to pay taxes). This also means that the Ethiopian
state will gradually increase its revenue collection capacity and be
self-sufficient. India, once an aid recipient country, has said “no thanks” to
bilateral aid. The revolutionary democrats should set a timeframe for doing
what the Indians just did.
I was in
Canada when the debate about the introduction of goods and sales tax (GST) was raging
across the country. The idea was to tax everything that Canadian bought with
exceptions of exempted goods and services. Canadian did not like it. Even an
opposition party had promised to cancel it if elected. But nothing happened.
Because, the GST has enabled successive governments under liberals and
conservatives to register budget surpluses. Canadian have also got used to
it. I do not have the information to
know the extent of application of Ethiopia’s value added tax (VAT), but it is
also worthy to study if a GST-like taxation system could be more appropriate
for some areas of taxation. A simple example: if a low-rank government worker
can afford to buy a draft beer after work (paying 3 Birr), he/she should be
able to pay 10% in sales taxes (30 cents).
In my last
piece, I talked about civic education. This issue is also relevant here. If I
am a district administrator, I will educate local people why the state collects
taxes, who pays taxes, how taxes are paid, how taxes are allocated, how tax money
is used, and so on. After seeing the trickle-down of benefits, Ethiopians may
have realized that their taxes are no longer used to finance the lifestyles of
greedy urban elites. But they still need to build their confidence in the
system.
I will have
a say on current Diaspora issues soon.
But let me seize this opportunity to make a passing remark on H.R. 2003.
I wouldn’t get too much consumed with this issue. With the Pentagon Operation
in Africa taking off, the last thing Americans want to do is antagonize their
relationship with a regional power. I think what infuriates Ethiopians is that
this bill touches their national pride. The American Congress did not pass a bill on Pakistan, Egypt,
Saudi Arabia, Libya, Syria, the list
can go on. It pass a bill on Ethiopia – despite progress in democratization and
development – only because groups of Diaspora Ethiopians, who also have
acquired American citizenship, successfully lobbied for it. Maybe someone did
not tell Americans that Ethiopia’s revolutionary democrats are proud and
stubborn people who do not budge to the demands of foreigners.
Getachew
Mequanent
Ottawa,
Canada
November
2007