In the early 1960s Singaporean Prime Minister Lee Kuan Yew was faced with a vexing problem. Historically governments are not popular in the capital city and rural support was not an option because Singapore is a city-state.
So to cement his party’s hold on power and ensure future stability for his small nation Lee Kuan Yew’s government embarked on an ambitious project to provide quality housing for the population. And they did it with little or no donor assistance.
This single initiative had a ripple effect through the entire economy, fueling the growth of the construction industry, pooling more resources into the formal sector and consequently laying the foundation for a middle class which underpinned the tiny state’s transition “from third world to first in one generation”.
Seen in this perspective last week’s riots and the threats to national security by shadowy rebel groups are a symptom more of poverty than of political dissension, and government will have to pay more than lip service to raising people’s incomes if it is to hang on to power and ensure political stability.
There is no doubt that there is dissatisfaction with our political class but the middle class represents, by virtue of its members’ desire to retain their jobs and protect assets, a buffer against the sort of violent demonstrations we saw last week. I can confidently say I do not know anybody who was actively involved in pelting the police, looting shops and burning vehicles last week but I would run out of fingers and toes if I was to count the number of people who think all is not well in this country.
The middle class cannot be wished into existence but come as a result of a vibrant economy. It is agreed that economic growth is only sustainable if it is private sector led. The government’s role is to create the enabling environment through macro-economic stability, strategic intervention and fair regulation.
However this government despite its pro-business rhetoric continues to kill the goose that lays the golden egg. Two week’s ago the World Bank cut 10 % of its usual budget support to Uganda largely because of government’s persistent budgetary indiscipline. An aid cut is not necessarily a bad thing as it will force us to mobilize our own resources but it is why aid was cut that is worrying.
Government is overrunning its budget by indulging in such endevours as financing the creation of new districts and other questionable political projects. And we are not talking about corruption yet. However because the government, thank God, sees the sense of macro-economic stability it goes back to the public and using treasury bills borrow back all this money that’s hemorrhaging from the coffers.
The way banks work is that if the 91-day Treasury bill rate is x they will add a risk factor plus their margin, y to get the rate at which they will lend to the public (x+y). So the higher the yield on the Treasury bill the higher the banks will charge for their money. The higher the banks charge for their money the more restricted are companies’ capacity to expand and create jobs.
To illustrate the strength of the private sector to grow employment if enabled we need not look far. The privatizations and liberalization of the 1990s – their shortcomings not withstanding, created jobs faster than the public sector could. This spurred the creation of a middle class who you would be hell bent to see throwing stones at police on Kampala road.
Also because of and not entirely because of the high interest rates the housing sector is failing to keep pace with housing demand. In Kampala it is estimated that there is a shortage of 66,000 houses and yet the urban population is growing by about 4% a year, which explains the unrealistically high price of land.
But there are other mind-boggling policies the government assumes which fly in the face of the creation of a middle class. Education for instance is supposed to be the great leveler, a social climbing tool. So it leaves one in open-mouthed wonder that private schools, which are filling a gap the government has failed to bridge, are paying company tax on these institutions as the breweries or discotheques.
Not only is official policy putting the brakes on universal education but they are also strangling one of the few areas for which this country has a regional comparative adavantage.
Despite a rap on the knuckles by the donors will this government rein in its voracious appetite and behave, give the private sector a chance to grow and therefore the middle class? I would love it if my sceptism were dispelled. And by focusing on the economy would democracy grow?
Sustainable economic growth can only come in a democratic setting. And secondly democratic principles – like freedom of the press, separation of powers of the arms of government and freedom of association sprung out of middle class virtues. To ally oneself with the peasants is a good tactical move to ensure electoral victory but for long-term stability, the focus should be on actively encouraging the growth of a middle class.
