Saturday, April 1

Cargo Cult Economics 7 - The 7% Solution

From Reuters Ethiopian government says may reach moon by end of decade:
The Ethiopian government has promised to leverage its spectacular economic growth into a space program. In a speech before Parliament the Prime Minister vowed "to put a cadre on the moon before the end of the decade."

Foreign Embassies were reportedly pleased to discover that the EPRDF Space Program encompassing the entire ruling party business empire and all foreign aid was the secret destination of all their billions rather than Cayman Island Bank Accounts.

The Prime Minister also said that the EPRDF Space Program could easily be carried out without the aid of 'colonial viceroys' but that getting the cadre back to earth again would require a few tens of billions of Euros and Dollars "that were a small price to pay for such an achievement."

A spokesman for the EPRDF Space Program added that the Moon mission was just a first step, "next we plan on a trip to the sun itself but will not make the mistakes of the Americans or Soviets - we will fly at night to escape the sun's heat and our spacecraft are designed to roll down their windows to cool off if need be."

Calls from government critics for ALL cadres to be sent into space were met by mass arrests and killings nationwide. A spokesman from the EU agreed that the accelerated oppression was unfortunate but noted that the EPRDF had clearly turned a corner, "the Cadre in Space Program proves that this government deserves the continued support of the Donor Community."
We should state at the outset that the above is not true and is intended purely as satire. However, dear reader, step back for a moment and consider the much greater level of absurdity of the 'Cadre in Space Program' if it was taken seriously.

Does it really sound that much different than all of the government's promises over a decade and a half to get the aid money flowing in ever increasing amounts? Not to us. Given Ethiopia's current government and policies - expecting normal economic growth or political evolution is as ridiculous as an EPRDF space program.


In The 7% Maskirovka we discussed the ongoing absurdity of the claims of economic growth made by the Ethiopian regime as well as the overt complicity of those who report that false news with a reverence that no other news source is accorded.

The origins of the 7% Big Lie are not really deep at all.

Perhaps we should begin this story with an article by Dagmawi, Two Incompatible Objectives. In a nutshell - while the masquerade of democracy has been constant since 1991 there was a particular motivation for the Big 'Election' Lie of 2005.

In the years prior to the election, Meles had carefully examined Ethiopia’s economic trends and concluded there was no hope of achieving substantial reductions in poverty in the foreseeable future.

His solution was not to try new policies. Instead he came up with the “double aid” scenario. Meles insisted that all foreign donors must double their aid to Ethiopia. This “double aid” scenario envisioned foreign aid growing from 11% of GDP to 22% of GDP and was presented to the IMF during the IMF’s regular consultations with Ethiopia.
under the doubled aid scenario, the authorities expect a marked acceleration of real GDP growth that is needed to achieve the income poverty goal of halving the number of people living in poverty by 2015.
- IMF January 2005

The IMF was skeptical of Ethiopia’s intention to mobilize such a large degree of additional aid, but Meles was undeterred. He offered the aid donors something in return – a new standard of good government in Ethiopia and a standard that would be promoted in Africa as a whole through the Blair Commission and through Meles’ active participation in the New Partnership for Africa’s Development (NEPAD).

One of the standards for good government in the 21st century is a government that is elected by the people and that can be removed by the people. Thus the May 15 election.
Meles Inc. also expected massive increases in aid for putting on a good economic show in addition to the good political show of the 'election'. According to Adam Smithee and our post All About the Benjamins? the Millennium Development Goals included the promise of a

Wealthy nations must quadruple aid to Ethiopia if it is to escape the mire of poverty and meet the 2015 international goals, Prime Minister Meles Zenawi said on Tuesday.
Officials estimate that Ethiopia needs $122 billion over the next decade if it is to wipe out poverty and hunger. It currently receives $1.9 billion in aid a year.
Note that $122 billion is larger than the sum of Ethiopia's GNP projected that whole decade into the future.

Well, we all know how the 'election show' turned out. Rather than the dreamed of massive infusion of aid, the EU for example has threatened to cut (or actually cut aid - we are never sure) because of the way the Ethiopian government is treating Ethiopians.

We are now seeing how the 'economic show' is turning out now in the trumpeting of false good economic news. Ethiopians are the poorest people on earth and getting poorer every year. Per hectare and per capita income and grain yields fall continually and are utterly dependent on rainfall. It is among the most poorly governed, corrupt and least favorite places on earth for foreign investment.

No country on earth that has denied basic private property rights (the inseperable party / government apparatus owns ALL land) has ever experienced the development of an economy capable of improving poverty or of developing representative institutions. Both aims of any civilized government are rooted in the confident right of ownership as the anchor or participation in economic and political life.

The party / government apparatus not only owns all land it controls the economy at every level from fertilizer dependent sharecropper agriculture to corner kiosks onto every source of foreign currency. That includes aid money of which companies owned by the above apparatus get the majority of contracts.

Foreign aid and remittances from societies where Ethiopians are actually allowed to prosper have created thin spots of growth in Addis Ababa - however the fortunes of that city's residents shrink every year in real terms. Ethiopia's economy is so small and so vulnerable that figures in the millions of dollars or birr are seen as evidence of growth.

Mind you - this is all at issue because actual policies to develop the economy have been rejected in favor of eternal beggar status. There are clear policy decisions to prefer dependence on the vagaries of the West rather than the potential or interests of Ethiopians.

Because Ethiopians of every stripe know exactly what they are dealing with in their government the social contract has been written to exclude all 70 million or so of them and to include instead billions of Pounds, Euros and Dollars from more cooperative foreigners.

None of this is a prescription for economic growth. But the usual lies about double digit economic growth have been carefully trimmed to 7% for the international audience that seems all to glad to hear them. Since the regime has so much blood on its hands lately the economic side of the plan to empty donor taxpayer's wallets is in full force.


A well informed reader sent us this article from Finance & Development, the quarterly magazine of the International Monetary Fund.

It goes all the way to defining the specific origins of the 7% Big Lie. For the moment set aside the obvious reality that economic growth is not about aid but about ownership, opportunity and institutions.

This bit of common sense is clearly opposed to MDG and the Jeff Sachs school of "just throw so much money at 'em that they can't manage to steal it all" school of economics.
On current trends, Ethiopia will not meet any of its UN Millennium Development Goals (MDGs) except for the target on primary school enrollment. Considerably faster economic growth, supported by a strong policy package, and higher inflows of net official development assistance (ODA) are therefore needed.
Remember who is speaking here - to the international aid bureaucrat more money is always the solution just like a hammer sees every problem as a nail.
Our findings suggest that Ethiopia faces enormous challenges in boosting growth and meeting the MDGs, even with far higher levels of aid—in part because of the need to ensure that this aid is absorbed and used effectively.
Translation: the economy is utterly dependent on aid already, it hasn't helped much and much of it is wasted by a corrupt system.
after the overthrow of the former pro-Soviet Derg regime, [new policies boosted] the overall GDP growth rate to an annual 4.0 percent in 1991–2003 from 2.8 percent during the Derg rule (1974–91).
The four percent rate is far below every government claim ever made. That the IMF is reporting it is odd because Western agencies tend to just repeat government claims.
During 1991–2003, agricultural value added was driven mostly by increases in the area under cultivation, rather than improvements in productivity.
Government ownership of land with economic and political insecurity as a result makes for a lack of interest in improving land by farmers who may lose land to government cronies once they have invested in it. Mass use of fertilizer is also a crucial part of this food equation and indebtedness for fertilizer is used as a political / economic tool to control peasants just like in Company Towns and the lives of Sharecroppers in the past.

Indeed, the whole of Ethiopia is one massive Company Town owned and operated by Meles Inc.
In 2002, Ethiopia drew up a Sustainable Development and Poverty Reduction Program (SDPRP) that targets economic growth averaging 7 percent a year in order to halve income poverty by 2015.
The 7% Delusion raises its ugly head here. The whole business is clearly a joke. Just like Agricultural Development Led Industrialization, Revolutionary Democracy and Internet Dependent Development etc. this is just another way to give donors something to talk about until the aid checks clear the bank.

Then the next year or the next set of negotiations a new set of initials and impressive promises rooted only in how gullible ferenjis want to be and what Meles Inc. thinks it can get away with are pulled out of a hat. Does the IMF think that any of this will work? Not really although as usual they don't come out and say so.
In the agricultural sector, this strong improvement in real output is premised on productivity growth rising from an annual 0.4 percent historically during 1991–2003 to an average of 9.0 percent a year over the medium term.
The answer is that according to an IMF study, is that it would require major increases in public and private sector investment and productivity. Public investment as a ratio of GDP would have to rise to an average of 15.8 percent over the next 15 years compared with 7.7 percent during 1991–2003.

Private investment is expected to be stimulated by the government’s reform program. In our analysis, we assumed that private investment would rise broadly in line with public investment, increasing from an average of just over 9 percent in 1991–2003 to almost 16 percent during 2004–15.
Once again, the IMF is too polite to say so but it is clear that no one believes this will ever happen. The next section is also full of very diplomatic IMF assumptions that it is all a waste of time.

The list of things that need improvement is so long that results have been abandoned by any normal economic standards. But, the IMF writers gamely keep pushing on.
In agriculture, the ambitious objectives for growth underline the importance of reforms to enhance productivity (for example, by improving security of tenure, establishing appropriate risk management systems, improving access to rural finance, and reversing environmental degradation) and access to markets (for example, by improving the functioning of markets for both agricultural input and final goods, and improving rural infrastructure).

The required productivity gains also point to the need for significant progress in the privatization of remaining public enterprises; removal of impediments to private sector activity; development of the domestic financial sector; and improvement in access to urban land and Ethiopia’s infrastructure.
This whole previous section of the IMF report is essentially an indictement of the EPRDF government and of the inseperable Meles Inc. party / business empire. What the previous two paragraphs are saying is, in the most deft bureaucratic language, that the Ethiopian regime is DOING EVERYTHING WRONG in terms of actually delivering growth to Ethiopians.
Achieving the MDGs will require a significant rise in public expenditure. In the absence of a comprehensive analysis of the costs of achieving the respective MDGs, the IMF study assumed a doubling of official development assistance as a share of GDP to meet the MDGs, in line with the Ethiopian government projections.

It was thus assumed that ODA would rise from 11 percent of GDP in 2003 to 22 percent by 2015, allowing poverty-reducing spending to rise from about $20 per capita in 2003 to about $78 per capita by 2015. The projected increase in public expenditure reflects an increase in recurrent expenditure.
So the solution is not to really fix any of the permanent obstructions to normal human development as seen anywhere else on planet earth but to just keep throwing money at Ethiopia. So much money that her leaders will have too much on their hands to steal so that some will end up being spent where it may be needed.
Raising the level of growth to 7 percent annually, as targeted under the government’s medium-term scenario for achieving the MDGs, would represent a substantial improvement over the experience of the past 13 years. But is it really possible?
The answer is NO and everyone who pays attention knows it. So that is where the 7% Big Economic Lie comes from.

It is amazing what folks say when they don't just come out and say it ... even international bureaucrats can drop knowledge when you take a Wax & Gold approach to them.

Because the regime is slaughtering its own people, a source of money may be denied it from those concerned with human rights. The dream of oil paid with the price of Anuak blood seems far away still. The Ethiopian government is therefore pretending that it is already meeting the 7% goal for MDG economic growth even though this is an obvious lie to anyone with even minimal curiousity.

The expected response is billions in checks being handed over while donors figure that "hey Meles Inc. may be a blood drenched mess but they sure deliver on the economic front - and c'mon do you even expect that much from an Ethiopian government to begin with?"

The truth, the rather obvious truth, of the matter is that Meles Inc. is not delivering on any promises at all except the ones to stay in power at all costs. Anyone who believes anything at all from that government in terms of economic news is a willing accomplice of their rule.

Ethiopians already have all that they need to develop healthy political and economic institutions and fulfill the promises made by generations of blood, sweat and tears - the answer is all in the human brain.

They just have a bloodthirsty greedy government in their way.


related posts of note

Ethiopians are not poor even by the standards of Biblical suffering and they are not oppressed even by the standards of familiar African dictatorship by accident or fate. It is all about government and policies that many of the posts below investigate in depth.

The authors of these policies are the ones that aid donors and other development partners embraced and continue to value after a decade and a half of economic and social de-evolution masked by tens of billions of aid to one of the most corrupt, poorly governing and brutal governments on earth.

The 7% Maskirovka details how claims of economic growth are lies carried out with the complicity of willingly gullible partners in the international media and aid organizations.

Economic Absurdities details how all accounts of Ethiopia's economic performance must not be considered at face value and that the economy is in fact a stagnant mess utterly dependent of foreign aid and remittances.

lies, damn lies & statistics re-examines false claims of high Foreign Direct Investment that are part of the ongoing and defining propaganda campaign that the Ethiopian government runs instead of governing the country.

The Tragedy of the Commons discusses how common or far worse government ownership of land has always been a plan for disaster.

Cargo Cult Economics Pretense of freedom and a free market is alive and well in Ethiopia with absolutely no attention given to the institutions and accountability necessary for free and prosperous nations. The whole edifice of the massive money transfer to Swiss banks (aka MDGs) is like the Pacific Cargo Cults based on the idea that prosperity comes from rituals.

Cargo Cult Economics 2 - All About the Benjamins? Development is about more than cash - it is about institutions. In fact any money in the absence of reason and rationality will hurt more than help by breeding corruption and the destruction of needed institutions.

Cargo Cult Economics 3 - Structural Corruption Corrupt and unaccountable party and government owned businesses and monopoly service providers in an effectively single party state do not provide a setting where you can expect freedom and prosperity or accountability.

Cargo Cult Economics 4 - Short Term Memory Recent African history from the era of independence in the late 50s and 60s on is full of the serial discovery of visionary rennaissance leaders that the world has fallen in love but whose policies have only bought tragedy for their people.

Cargo Cult Economics 5 - Cheerleaders and Cargo Cult Economics 6 - Sachs & Violence Intellectuals and academics who give cover and encouragement to third world despots and their bound to fail economic schemes imagine that it is OK for some to live under different rules than they would expect for themselves. That is an example of the vile sentiment of actual romance and purpose that is found by some in other people's suffering.

The World Is Yours Is an introduction to anothers series from numerous sources detailing the essentially corrupt system that Ethiopians suffer under. A system that simultaneously wastes billions in aid dollars and euros while impoverishing millions:. Basically, the Ethiopian government at present is difficult to distinguish from an organized crime network. The World Is Yours II - The Syndicate, The World Is Yours III - The Commission, The World Is Yours IV - "An Offer They Can't Refuse", The World Is Yours V - Capo di tutti Capi

'Zenawinomics' and the Aztec gods, let the ferenjis feed 'em again and let the ferenjis feed 'em take a look at the game of 'bumper crops' and 'looming famine' that is played out regularly with the result that taking care of Ethiopians or even allowing them to take care of themselves has been abandoned in preference for letting aid donors take care of it all.

The Birth of Plenty, Do the Right Thing and Luck and the Idea Trap show exactly how other nations have escaped destitution and tyranny, why Ethiopia as currently governed never will and how such horrible decisions are purposefully made by governments.

On Borrowed Time focuses on the agricultural economy and how all present trends given current policies point downwards. Malthus, Hobbes and the Red Queen looks to the future and further finds that without changes Ethiopia is heading for a horrible appointment with destiny so that a few can remain powerful and rich.

The Politburo Knows Best series looked at the prospects for liberal democracy and found them poor indeed. Almost all of the same factors predict prosperity as well and they have all been abandoned in favor of eternal power for a few. The following provide clues to the ideological undperpinnings of Ethiopia's current suffering and the policies that define it. Basically, the controls provided for below explain why the trade-off was made for eternal beggar status vs actual development.

Politburo Knows Best III - Revolutionary Democracy The national guiding ideology is still Marxist-Leninist-Maoism - so you can assume there aren't great prospects for freedom and prosperity. Since about the time this seminal essay ;-) was posted the government has not mentioned Revolutionary Democracy aloud again but it still defines their world view exactly.

Politburo Knows Best IV - Revolutionary Feudalism There are no rights to own private property whose protection is essential to all prosperity and personal & political rights worldwide throughout any period of history.

Politburo Knows Best V - The Wretched of the Earth Ethiopia's system of tribal divide and rule 'bantustans' has more in common with medieval feudalism than anything modern or decent for humans to live under.

Politburo Knows Best VI - Defending the Revolution An intense system of of control inherited from the Communist Dergue of Mengistu (known in Cuba as 'Committees to Defend the Revolution') exert absolute government control and fear at the lowest (neighborhood or block) level in unseen rural areas (85% of the people) and urban lives as well.

A Bodyguard of Lies looks at the art of untruth and Ethiopian government in the bloody aftermath of the 'election'.

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