Who is breaking the social contract? — Part II

Jesus responded by asking whose face was engraved on the coins used to pay the taxes. When they answered it was Caesar’s face, Jesus replied: “Then render to Caesar the things that are Caesar’s; and to God the things that are God’s”—Matthew 22:21

In last week’s discussion, the current state of Malawi’s social contract between the governors and the governed was scrutinised. To be honest, the contract is in disarray and in need of massive repair.

There are visible signs that both the governors and the governed are stomping all over the rules of operation in the social contract.

A social contract is when the governors, the government, collect taxes from the people, the governed, and then provide services and establish structures for the people to go about their businesses.

In that article, I highlighted some weaknesses in areas such as land reforms, infrastructure development and corruption.

This week, let’s look at privatisation and how brought poverty in the country.

Firstly, privatisation came to the country through the banner of Structural Adjacent Programme. It is a package of economic reforms that poor nations such Malawi had to adhere to in order to secure a loan from the International Monetary Fund or the World Bank.

Structural adjustments were often a set of economic policies, including reducing government spending, opening to free trade, privatization of State enterprises and so on.

Privatisation was implemented in two phases. The first phase was between 1984 and 1991 and started with asset swaps between Agriculture Development Marketing Corporation, Malawi Development Corporation and Press Corporation in 1984 with subsequent privatisation in 1987 and 1991.

Later, more State-owned entities were sold off.  According to the World Bank, by 1997 there had been 44 privatisation transactions, including those outside the privatisation programme with total sales of $56 million.

By July 1999, the programme had raised around K850 million, which at the times translated to one percent of the gross domestic product (GDP).

Did privatisation achieve its objectives? At firm level there appears to be some indication of an improvement in performance. However, when one looks at the national level with the fact that the programmes core mandate was to eradicate poverty, there is some doubt that it achieved its goal.

In the years that followed, Malawi’s economic indicators have worsened since liberalisation and privatisation came in, though these are not the only factors that impact on poverty indicators.

However, rather than creating a middle class, that the programme was widely purported to do, it brought misery and poverty.  It led to the total offloading of government shares from the national economic enterprises.

The national enterprises were once the foundation for economic activity and well-being, but were taken up by mainly foreigners who either downsized operations, closed shop or exported entire working factories across borders.

Thousands of Malawians lost their jobs and languished in untold poverty. Privatisation infused with the influx of large populations of people from rural areas to urban centers.

This was topped by an unguarded and uncontrolled influx of cheap imported goods that killed local manufacturing. n