Why Uhuru could use new advice on ailing economy

Kenyans rendered jobless by the coronavirus pandemic sell different foodstuff along the Northern Bypass Road in Nairobi on May 18. Good policy advice could help the country mitigate the effects of economic downturns. [Edward Kiplimo, Standard]

We love copying the US, but selectively. We copied their constitution, complete with governors and senators. We pretended we did not realise they have no woman reps, nominated MPs and senators, or MCAs.

We also failed to understand the institutions that underlie their big federal bureaucracy.

We saw the tip of the iceberg; we never swam to see what was below the surface.

We created offices but not the culture, traditions and raison d’etre for their creation.

The US is a huge country and is diverse, rich in resources and much older than Kenya. It was once a UK colony, but it dwells little on colonialism.

One institution we forgot to create was a Council of Economic Advisers, which has been in the US since 1946.

“The Council of Economic Advisers, an agency within the Executive Office of the President, is charged with offering the President objective economic advice on the formulation of both domestic and international economic policy.

The Council bases its recommendations and analysis on economic research and empirical evidence, using the best data available to support the President in setting our nation’s economic policy,” says the White House website.

Note the keywords such as where it is domiciled - the office of the president.

This shows the importance of economic issues in the US. We expect the most critical office to be housed within the Presidency, except where the presidential post is ceremonial, such as in Germany, Israel or India.

Two is the mandate: the advice must be objective in the formulation of both local and international policies. We love being subjective and end up making the wrong decisions. 

The originators of this office were cognisant of the partisan nature of politics even in developed countries.

They also understood the interlinkages between a national economy and other countries.

Purchasing power

Three, the use of empirical data, as opposed to emotions, is the basis of advising the president in the formulation of economic policies.

Every year, the council - currently comprising about 18 eminent economists - publishes the annual and detailed Economic Report of the President. One of the members is designated as the chairman.

The mandate goes further to specify what the objectives of the policies would achieve: “To develop and recommend to the President national economic policies to foster and promote free competitive enterprise, to avoid economic fluctuations or to diminish the effects thereof, and to maintain employment, production, and purchasing power.”

This applies to the Kenyan economy, too.

Promotion of free competition brings about efficiency and innovation.

Since the enactment of the Sherman Antitrust Act of 1890, monopoly has been discouraged in the US economy.

Some firms such as Standard Oil and AT&T (the original one) were broken up to spur competition.

Mergers are also scrutinised to ensure they do not reduce competition. The industry that best espouses free competition in Kenya is the matatu industry.

We have even got free competition in politics through multipartyism.

But this, in my view, is being rolled back through coalitions.

The other achievement is avoiding negative economic fluctuations like the one caused by Covid-19. The originators of this office seem to have realised that we can’t eliminate economic fluctuations, but we can mitigate the effects of joblessness due to firms going out of business.

Maintaining employment during fluctuations, particularly recessions, is another objective of the policy advice. By maintaining production, we maintain jobs.

But during recessions like the Covid-19-induced one, production often slows down as demand falls.

Through fiscal and monetary policies like tax and interest rate cuts, we can create demand and maintain production. By raising or lowering interest rates, we can also maintain purchasing power through keeping inflation in check.

Looking at the mandate and objectivity expected from this council, is it high time we set up such a council in Kenya?

One could argue that these decisions can be taken by other offices like the Central Bank or even research institutes like the very quiet National Economic and Social Council (NESC).

Objective body

The centrality of economics as the country gets modernised means a permanent advisory council would be in order.

This view is further buttressed by the recent appointment of a team to revive the Kenyan economy in the wake of the Covid-19 pandemic.

The partisanship of Kenyan politics calls for an objectives body to give objective advice. It does not need to be modelled exactly like the American Council of Economic Advisers, but we can adapt and modify it to our unique social-economic circumstances.

Without a crisis like Covid-19, the council would work on the best economic policies for our country.

We do not have a shortage of good and objective economists.

We could even co-opt foreign economists to spice up the team and bring a diversity of ideas.

After all, most economic ideas and laws are universal; they just need some creative contextualisation.

The writer is an associate professor at the University of Nairobi