Economics and Business Forum

Economics for everybody

There are certain branches of knowledge we can safely leave to specialists. We do not have to bother about whether more is habitable, specialists will tell us.

Agriculture is the source of our livelihood. However,what is required to make the land grow more food we can safely leave it to agricultural scientists and farmers to find out while we make more through other economic activities and use some of it to buy products of the land.

What constitutes personal and public health we cannot afford to make it the concern of doctors and nurses alone. Everyone must know the elements of good health, the causes of common diseases and where to look for help. You do not have to be a doctor to know the causes of malaria, anaemia, diarrhoea and a variety of infectious diseases. It does not require talents to understand these aspects of health science. Common sense is enough. The same is true for economic science. A good deal of it is a matter of common sense and deserves to be understood by everyone. More so, those who take active part in public affairs. In this article, we must commend briefly on some of the basic elements of economics.

Scarcity and needs: The essential and good things we want or need are numerous; perhaps difficult to list down, but the means of acquiring them are always inadequate. In ordinary language, no one has enough money to buy everything he/she would like to.

Life is a matter of choice making. We do not have the means to buy everything we need, neither do we have the strength and the time to do everything we would like to do. If the loving mother says to her daughter, Zione, of three toys; black, blue and read, which one do you want me to buy for you and the child says all of them, she is making excess demands. Mum must spend part of her salary on food and shoes for the family.

Constituency members must decide which of their need their Members of Parliament (MPs) should go and present to Parliament. Not all their needs. The Minister of Finance, Economic Planning and Development has got a budget for some of the things, not all.

Pareto’s principle: Vilfredo Pareto, an Italian sociologist with a highly original mind noted that 80 percent of the income a shop earns on a particular day is contributed by only 20 percent of the merchandise. These he called the vital few. A sensible shop owner, therefore, in restocking his shop spends most of the money on the vital few.

In Parliament, most of the leading discussions are contributed by 20 percent of the MPs, disorder in schools is contributed by only 20 percent of the few agitators while other just follow.

Diversifying the economy: For several decades, our politicians have been acknowledging the need to diversify the Malawi economy within agriculture and between agriculture and other sectors.

Since the resources are few, how should the government proceed? It should be guided by the Pareto principle. First, list down products and industries that have growth potential then identify those which are likely to contribute 80 percent of the income, give special attention to those. Beginning early 1950s, Japan concentrated on the steel industry and South Korea on ship building or what we would call high technology industries. With these, they conquered world markets.

One hears some commentators saying Malawi should process its tobacco into cigarettes for exports. Will this be part of the 20 percent exports that will bring in 80 percent of the income in the foreseeable future? What about the anti-smoking lobby.

The current account: The difference between money earned by exports and money spent on imports constitutes what is called current account balance. If export income is less than the money contracted for imports, then a country is in debt to others.

How serious is this. If the excess arose from importing consumer goods such as cars, beers, processed foods, the deficit is a very serious one and might cause problems for a long term. If the excess is due to imports of vital capital equipment and raw materials to be used in export industries, we need not worry too much. Sales of the products from their industries will provide the foreign exchange to settle the debt in due course.

We understand that People’s Party (PP) government borrowed from the local market too much. On what did it spend the excess borrowing? If it spend on capacity building, that was investment which might yield results in the form of economic growth. If the money was spent on electioneering campaigns or other forms of consumption, then inflation will be with us for quite a time, for inflation gives way only to an increase of goods on the domestic market, produced locally.

Economic dilemma: When you increase employees’ wages to cope with a rise in cost of living, you worsen either unemployment or inflation unless the production of goods and services in accompanied by healthy sales. If products and sales have not made a corresponding increase, you can only increase the wages by reducing the number of employees (retrenchment) on the payroll. You then contribute to unemployment. The alternative is to retain all the employees but hike the prices of goods and services you provide. This is how cost-push inflation gets out of hand.

Life is always a matter of trying to cope.




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