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Feature Article of Wednesday, 16 February 2011

Columnist: Amegashie, J. Atsu

Kafo Didi: Living Large but Producing very Little

*J. Atsu Amegashie *

February 13, 2011

Conventional wisdom strongly suggests that corruption is a way of life in
Ghana. There is perhaps no Ghanaian of adult age who has never paid a bribe
for a government service.

About 28.5% of households in Ghana live on less than $2 a day. Recently
revised and favorable figures by the Ghana Statistical Service show that the
country’s per capita GDP is not more than $1500; the IMF’s figure (PPP) is
$1600.

How are people expected to live in a country where the average income is
$1600, credit markets are very weak or inaccessible to most people, and yet
people must make two-year advance payments of about $2000 or more for a
decent apartment? The cost of living is very high in Ghana. We are not
producing enough. Our GDP is very low. Yet that does not deter many
Ghanaians from living large . There are three ways of living large when you
don’t produce enough: (1) borrow (what you have not produced); (2) steal
(what you have not produced): corruption; and (3) depend on the charity of
others: foreign aid or welfare payments.

Most people in the western world go for the first option and also rely on
the third option because they could recieve transfers from the state. This
is because they have well developed credit markets and are integrated in
global credit markets; their banks can raise funds on international credit
markets (e.g., borrow from China by issuing financial securities). Of
course, the recent financial crisis has shown that this not a sustainable
plan. You cannot borrow forever. In western economies, transfers from the
state to the poor are possible because of their sufficiently high national
output.

In countries like Ghana where credit markets are very weak or not easily
accessible, most people choose to steal what they have not produced
(corruption). And, in most cases, they do so by stealing from the state.
This means that resources required for crucial public investments in human
capital (i.e., education, health care), roads, law and order, etc end up in
hands of private individuals (politicians, civil servants) corporations,
etc. This creates a vicious circle where the lack of these investments
reduces the economy’s productive capacity which, in turn, creates the
conditions that exacerbate the incentive to steal.

Differences in law enforcement and monitoring also account for the
differences in corruption. However, the lack of credit could also force
people to find corrupt ways of making ends meet. In addition to reducing the
state's capacity to raise revenue for public goods, corruption, if seen as
an extra tax on economic activities, worsens the efficiency losses of
taxation especially when the government has optimally chosen taxes
(including duties and user fees).

Foreign aid may facilitate "living large but producing very little". But it
is not enough and rarely ends up in the hands of those who really need it;
note that the USA’s MCA aid of $547 million over 5 years was approximately
$5 per Ghanaian per year. More importantly, foreign aid has the deleterious
effect of redirecting energies from domestic sources of revenue mobilization
to foreign sources. This is evident in the recent revelations that emerged
from Anas Aremeyaw’s undercover work “Enemies of the nation.” If foreign
aid is a gift (pure transfer), it makes us lazy and overly dependent on it
and if it is a loan, then we still have to produce enough to consume and
have something left over to repay the loan. Dependence on foreign aid is
not the path to economic prosperity.

Theft can be legal or illegal. When theft is legal, it is euphemistically
referred to as rent-seeking, a term coined by Anne Krueger of Stanford
University and former chief economist of the World Bank. Political lobbying
may be legal but it may still be a corrupt activity. Lobbying for government
regulations that redistribute income from one group to another but reduce an
economy’s output of goods and services is an example of rent-seeking. In a
1974 article, Anne Krueger provided quantitative estimates of the social
losses imposed on the economies of India and Turkey by rent-seeking for
import licences from the state. According to her estimates, such losses
amounted in 1964 to 7.3 per cent of the national income of India and to a
staggering 15 per cent of the national income of Turkey. While rent-seeking
activity exists in every economy, it is worse in economies with a weak
private sector and a public sector that is the major employer. In these
economies, it leads to a misallocation of talent because some of the best
and brightest end up being sycophants and rent-seekers in the public sector
rather than competing in the private sector. Others vote with their feet by
leaving the country. A weak private sector also means there is a very high
return to gaining power in the public sector, so national elections become
"do-or-die" affairs.

The phenomenon of living large but producing very little is more likely in
countries with strong extended families. In his 1955 book, “the theory of
economic growth”, the Carribean economist and nobel laureate, the late W.
Arthur Lewis remarked that:

“Where the extended family system exists, any member of the family whose
income increases may be besieged by correspondingly increased demands for
support from a large number of distant relations … A strong sense of family
obligation ... may cause a man to appoint relatives to jobs for which they
are unsuited ...” (Lewis 1955, p. 114).

The above sentiment will resonate with most successful Ghanaians. This
pressure from the family may also cause them to steal from the state or from
their employer in the private sector. It may be fear rather than affection
for their family members which drives them to nepotism and theft
(corruption). This point was made by Jean-Philippe Platteau in his 2000 book
“Institutions, Social Norms, and Economic Development”,

“… principles of equity are so adverse to change [that] a single individual,
even when endowed with special qualities and powerful psychological
resources, cannot successfully defy the conventions of the society. He will
unavoidably … be squashed by various forms of opposition, especially when
his economic success depends on his behavior as a hardnosed businessman in
dealing with fellow tribesmen. To break through, he needs the protection
afforded by the deviant actions of a sufficient number of other innovators
in his locality. Rising economic opportunities alone will usually not
suffice to generate dynamic entrepreneurs in the absence of a critical mass
of cultural energies harnessed towards countering social resistance.”

Related to the previous point is a useful idea stressed by Jean-Philippe
Platteau in his aforementioned book. It is the distinction between limited
versus generalized morality. In hierarchical societies, codes of good
conduct and honest behavior are often confined to small circles of related
people (members of the family, or of the clan). Outside of this small
network, opportunistic and highly selfish behavior is regarded as natural
and morally acceptable. In contrast, modern democratic societies tend to
have abstract rules of good conduct that are applicable to many social
situations, and not just in a small network of personal friends and
relatives. As argued by Weber, the emancipation of the individual from
feudal arrangements has typically been associated with a diffusion of
generalized morality, and with the ability to identify oneself with a
society of abstract individuals who are entitled to specific rights. This
engenders nation building and, with reasonable law enforcement, reduces the
incentive to steal from the state, and also induces people to enter into
credit contracts and other contracts with strangers.

It has been argued that in most sub-Saharan African countries, the kin
system is a valuable institution that provides critical community goods and
insurance services in the absence of market or public provision. However,
the nature of risk-sharing and insurance are different from how these
institutions are commonly understood in modern economics. In modern
economies, the participants in an insurance market periodically pool their
risks (i.e., contribute to the insurance fund through the payment of
premiums) before the state of the world is known (who will be lucky or
fortunate; who will be in a car accident or not; who will be unemployed or
not; etc). In the insurance scheme of the extended family or kinship
system, no risks or contributions are pooled before the state of the world
is known. Instead, there is an implicit social contract that, after the
state of the world is known, the lucky ones should transfer resources to the
unlucky. Once the state of the world is revealed, everyone depends on those
that were successful for a very long time, if not forever. This has helped
many hard-working Ghanaians. But in most cases, it appears that it has been
abused. This insurance scheme is more redistributive than it is
efficiency-enhancing.

While most participants in insurance schemes in modern economies take their
actions behind a Rawlsian “veil of ignorance”, the insurance schemes of the
extended family system are driven by a “veil of full knowledge.” This need
not be a problem if, like a system of pay-as-you-go social security, the
population of those who are successful is rising faster than the population
of those who are unsuccessful. Unfortunately, this is not the case. In a
world of poor governance, limited opportunities, and perverse incentives,
successful family members carry a very heavy burden. This leads to low
national output and worsens the problem of corruption.

However, family pressures or a high dependency ratio do not explain
everything. Greed also plays a very important role; it partly explains the
desire to "live large while producing very little". During their tenure in
office, government officials like the president and some ministers of state
enjoy so many perks; some do not pay taxes, do not pay for their
accommodation, electricity, transportation, healthcare, clothing and
security. They are also paid a decent salary with enviable bonuses and per
diems. Yet when ex-president Kuffour left office in 2009, he wanted the
state to give him six fully insured vehicles – fueled and chauffeur driven,
to be replaced every four years; two houses; an annual luxury holiday
package; a lifelong health package; a non-taxable pension; security
personnel; $1 million for a foundation, and more. When his predecessor, JJ
Rawlings left office in January 2001, he moved into the now ravaged mansion
at Ridge by merging two government bungalows. He is alleged to have taken 13
cars with him. He was in power for 19 years -- 11 years as a dictator -- and
has his own mansion at Agyirigano, a suburb of Accra, but wants the state to
accommodate him.

Why do our leaders seek medical attention abroad (in Western countries)
while they refuse to invest enough resources in our domestic health system?
Foreign hospitals for the elites but ill-equipped and under-staffed local
hospitals for the masses? Everyone is trying to raid the “commons.”

In poor and very unequal societies, the return to social status is very
high. Ghana has both: a high level of poverty and a high level of
inequality. Unfortunately, this creates the right conditions for a poverty
trap because in societies with higher levels of poverty, the emphasis on
material-driven status -- when it financed from public coffers --- is
relatively more counter-productive. A very high return on social status is
likely to induce professors, doctors, engineers, and other high-ability
individuals to invest more in directly unproductive rent-seeking activities
like lobbying, and networking with the political elites as part of wealth
redistribution (i.e., get their piece of the national pie).

We care too much about social status that is based on material wealth
regardless of how such material wealth was acquired. In the western world,
the richest people are in the private sector and the politicians, at least
while in office, do not dream of competing with them nor do they see it as a
sign of lower status. They cannot afford the cars and houses that these
people in the private sector can afford. In Ghana and other parts of Africa,
the politician wants to earn more than or be in the same class as the
businessmen, CEOs, and other professionals in the private sector. A friend
in Ottawa (Canada) rides the bus with the Governor of the Bank of Canada.
When US vice-president Joe Biden was a member of the senate, he took the
train to work. Even if the public transport system is good, I do not think
that a professor, governor of the central bank, or minister of state in
Ghana could take the bus or train to work without public ridicule. One
former official of Ghana, whose name I have forgotten, justified the
practice of allowing ministers to retire with state cars on the grounds that
ex-ministers should not use the same means of transportation as the public.
The attitudes of our leaders and are own attitudes reinforce each other.
After all, our leaders are the products of our own societies and so reflect
our values. How many Ghanaians wouldn’t laugh at a former minister of state
if his car was below the average quality of cars in Ghana? How many will
praise him for his selflessness and unassuming lifestyle if he lived in a
modest two bedroom apartment? We, the people, have to respect and honor
those who lead a modest life and work hard; we should not glorify theft. We
are part of the problem. Still, our politicians must lead by example.

In Ghana and most countries in sub-Saharan Africa, most of our problems are
typically chicken-or-egg problems. Solving such problems requires a lot of
discipline. Given that we are not producing enough for all, we have to
change our values by not trying to live large; too many people want SUVs;
want to pay the fees of their kids for an education in a western country;
afford big houses and vacations abroad; etc. We cannot reap what we have not
sown. We have to invest, be patient, and wait for the fruits of our labor
to grow. But doing so requires a demonstration by our leaders that they are
in the same boat with us or that their boat is not too big and cozy.

The fight against corruption requires a non-partisan approach; it should not
be politicized. The test should not be which party did marginally better
than the other. The benchmark should not be what the other party did.
Instead, it must be a high level of demonstrable commitment to fight
corruption from the top to the bottom. Let’s produce more and stop living
large. In the era of accountability and responsibility, Kutu Acheampong’s
“Kafo didi” should not be our guiding principle. When we produce very little
but live large , we are, to borrow the words of the dancehall musicians
Bounty Killer and Barrington Levy, “living dangerously”.

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