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Confidence drives economy so don’t allow fear to rule 2022 poll

By Ndiritu Muriithi | Dec 19th 2021 | 5 min read
By Ndiritu Muriithi | December 19th 2021

When optimism is high, the economy grows faster. [Courtesy]

Elections, world over, are fought and won on key emotions - hope or fear.  Narc’s 2002 campaign “yote yawezekana” produced the most hopeful nation on earth in 2003, according to a Gallup poll. Our favourite campaign tune was “unbwogable” Gidi Gidi Maji Maji duo, because it invoked a sense that we were unstoppable. So euphoric were we that citizens arrested errant traffic police officers and not the other way around! 

In contrast, the 2012 TNA/URP campaign sold fear – of kimundu and the ICC. Earlier, the Kanu campaigns of the 90s created fear by not just threatening but actually visiting bodily harm on us, by way of tribal clashes and other forms of political violence! PNU’s emotionally neutral “kazi iendele” 2007 campaign struggled to gain traction, nearly costing Kibaki a second term.

Obama’s 2008 “yes we can” struck a deep emotional reaction based on hope of a better future for all, regardless of background or circumstance. Across the globe, people wept when he triumphed.

Meanwhile, Trump’s “make American great again” was based on the fear of job losses, stagnation of living standards, and loss of status as a global economic power house. It created very angry white voters. They applauded him when he was aggressive against women, blacks and immigrants.

What has all this got to do with the economy and urgent need for a nationalist coalition going into 2022? As it turns out, a great deal.  The economy runs on confidence. When optimism is high, the economy grows faster. When doom and gloom prevail, the economy is sluggish or worse, we get a recession. Let us examine the reasons briefly.

When citizens are very hopeful about the future – that is, when they are optimistic, it positively influences their consumption behaviour. They are more likely to build or buy a house, take a mortgage, go on holiday, buy a car and so on. Personal credit grows. Conversely, when we are fearful or pessimistic about the future, we adopt a wait and see attitude. Even our favourite investment – buying plots in Nanyuki, Rumuruti, Mlolongo or Kajiado - is put on hold. 

When businesses are confident about the future, they tend to increase the level of inventory and stocks, because they expect to sell. They are also more likely to make long term investments in plant and equipment. Conversely, when they are pessimistic, they reduce the level of inventories, withhold investments, and adopt a wait and see posture.  This is why economists talk about consumer and business confidence.

So, what happened in the years when we were unbwogable? Real wages increased four times. The stock market went through the roof. Equity, Co-op Bank, Safaricom and other corporates listed on the securities exchange. And anywhere Kibaki build a road, we followed quickly, bought plots, building many structures and starting small businesses. And banks literally put tents on sidewalks looking for customers.

But what happened when we felt fearful? Uhuru has built many more roads than Kibaki. But we have responded by complaining. He has redoubled his efforts, but consumer and business confidence have remained low. Annual growth of private sector credit has remained under 5% and we continued to complain.

How then are we to defeat fear and anger, creating hope in their place to ensure growth in personal incomes? A nationalist coalition. Because far from being just words, campaign messaging and posture unleash deep emotions that rule our sentiments for years after the election, driving consumer and business confidence one way or other, with major economic consequences.

 What is creating fear, and what are we angry about?

First, anger. One explanation by economists is that real wages have stagnated for over a decade. As a result, workers and small business operators feel disenfranchised. To paraphrase, jeshi ti ngenu. Real wages grew rapidly between 2002 and 2008, increasing 4.8 times, to 33,000 per-person per month. Thereafter, wages dropped to 26,000 by 2012, before rising sluggishly to the current level of 31,000. 

Many middle-class folks say that they have not made significant investments in the last decade. Yet they can see other people who seem to be operating in another economy, thriving. As a result, they feel disenfranchised, and wonder who is to blame.

This has led politicians to look for targets to blame. Dynasties, one group has already picked. In previous electoral cycles, Mt Kenya communities were the target. In America, Trump offered immigrants, Africa-Americans, and women as the targets for blame to explain why people felt their lives had stagnated.

Exploiting such disenchantment is fodder for populist politicians globally. And it creates fear! Which only worsens the situation because the economy cannot thrive when consumer and business confidence are low. And fearful people are low on confidence. Populism tries to apply political solutions to cure deep economic issues such as stagnation in productivity. It can win elections, but always makes economic problems worse.

As we saw at the end of Trump’s term, the angry white voters were still angry. They stormed and desecrated Congress, in part because four years of his rule did not reverse the jobs losses nor stagnation of living standards.

What then is to be done?  What drives real wages up? Increases in productivity. We must find ways to increase productivity at the firm and household levels. Those increases in productivity is what will make our businesses globally competitive, and lead to increases in real wages and therefore improvements to the standard of living.

Which means we have to solve underlying issues including high energy and capital costs and technology. Our competitors in the far East pay less than six shillings while we pay three times more per kilowatt hour. We must resolve that. Getting rid of expensive thermal power requires overcoming entrenched powerful business interests.

Although economists have yet to figure out if there is a direct relationship between real wages and real interest rates, it is not lost to casual observation that real interests were lowest in the years leading to 2008, averaging about 1.2 percent over a six-year period. It is the same period that real wages grew fastest. So, we must lower the cost of capital.

Thirdly, we have to stop penalising domestic technology. Some of our policies favour imported technology. To be fair these are tough policy questions. Effective policy requires broad legitimacy. Hence the need for a broad-based nationalist coalition! When we are together, there is less chance of being fearful of one another. But how are we to be together? Two models have so far been tested. One has failed. Another has worked. 

The competing idea is to have a nationalist coalition. Embrace various parties, then form a coalition. It leaves everyone feeling safer, and makes it easier to obtain widespread policy legitimacy for the tough policy choices ahead. 

In 1963, 2003 and 2008 we had broad based coalition governments. We thrived. Let us do it again in 2022! 

 Ndiritu Muriithi is the governor of Laikipia County

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