Wandering thoughts on the economy

It has taken foreign visitors to warn the Malawi Government that it is conceding too much in agreements its officials sign with investors concerning minerals. A former governor of the Reserve Bank of Malawi (RBM) at one time sounded an alarm at the agreement with the uranium company. No official action was taken.

Those signing agreements on behalf of the government should protect the interests of the country better if they obtained advice from not only lawyers but economists as well. The most pressing problem in this country is economic. Legal claims should be asserted with cognizance of economic effects or consequences.

Mineral resources are non-renewable, when taken out of the soil they are gone forever. Care must be taken to ensure that exploited minerals generate positive multiplier effects in the economy and form the basis of industrial expansion.

Admittedly, this is easier said than done. We live in times when investors seem to have greater power to choose where there are many countries with minerals such as uranium we must know that the investor may go elsewhere if he finds us not very welcoming. An investor will not undertake any project unless he foresees enough return or is free to repatriate some of the profits he makes.

Those who say we could have made a better deal are right but the nitty gritty call for a convergence of brains and interest groups. The investor who is already in the country should not be pressed to the extent that he is forced to quit because that would be bad publicity for investment opportunities in Malawi.

The basis of free enterprise economics is freedom of choice; consumer freedom of choice, freedom of employers whom we hire and freedom of individuals to choose their employers. There should be freedom to sell and buy. A variety of freedoms.

In the real world, freedoms operate imperfectly because some people do not enjoy their freedoms to the maximum unless they put others in chains. “Man is born free, and everywhere he is in chains,” thus wrote Jean-Jacques Rousseau, in his book The social contract.

These chains came about because those people who are stronger than others try to often do take away the rights of weaker members of society. Free competition in the market is frustrated by the existence of big firms that shove aside smaller ones. A poor man desperate for a job cannot negotiate on equal terms with employer.

It is because when the market is left completely to itself, some members of society put others at a disadvantage that a government introduces measures that seek to bridle the over powerful and buttress the muscles of the weak. One such measure is the statutory law on minimum wages.

Almost every year the Ministry of Labour announces fresh minimum wage for some categories of the lower economic classes such as labourers. These floor wage rates are repeatedly imposed because of inflation. Do minimum wages really benefit those who are eligible for them? It depends on whether prices stop rising after the minimum wage has been granted. Rarely is this the case.

Sometimes, employers react to compulsory minimum wages by reducing the number of their employees. The employer may retain all the workers on the payroll by raising prices of the products or services he sells. He does not want the higher wages bill to affect his profits.

The call by visitors to raise the minimum wage in Malawi should be heeded with checks and balances. In some countries concessions have been made to workers demands to the extent that it is the employer who is put in chains. Once he has hired someone he is into free to fire him except in rare circumstances. To say the employee is not performing, is lazy, disobedient is no excuse. The employee takes the employers to counter foreign direct investors intending to open businesses in India have been known to complain that labour laws there are intricate.

It is true that enough people in Malawi are very poor, whether they actually live on less than a dollar a day is debatable. Most people dwell in rural centres in their huts, drink water from boreholes or wells free of charge, prices of basic commodities determine the extent to which can support life each day or fail to do so.

What will improve the people’s living standards are not higher minimum wages but more abundant goods or commodities on which people spend their money. Bigger harvests of maize and pulses will enable people to return from markets with fuller baskets.

Let us do what it takes to invigorate the economy. It is a growing economy that is capable of paying higher wages in real terms.

By real terms, I mean the goods on which consumers spend their money. They do not eat money but rice, meat, beans or bread.

Behind the success of economies in the Far East was the willingness of employers and employees to accept one another or partners not adversaries.