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Subsidies: Idealism versus pragmatism

Financial Standard
 Subsidies are common in developed countries, and target strategic industries. [iStockphoto]

Politics is one of the best professions, though I am not about to join it.

It roughly mimics wind, the direction can change anytime. In which other profession can you change rules when you want, when it suits you?

But let’s be sincere: in developed countries that we admire, consistency is upheld and respected. When one says he is a democrat, he means it from his heart. The same applies to conservatives in UK or Christian Democratic Union (CDU) in Germany. Political flip-flopping is disdained. 

This consistency is respected, more so when it applies to economic policies. Political parties are known for their consistent ideologies across a spectrum of issues. In some countries, even families have political identities inherited from parents, just like religions.

That brings us to the Kenya Kwanza (KK) government. When they came to power, we thought from their pronouncements they were free marketers, ready to let the invisible hand of the market do its work. 

They were determined to replace debt with taxes, and do away with subsidies. They argued they would only subsidize production, not consumption. And true, the price of petrol hit Sh194 and was racing to Sh200. 

Setting the market free echoed the shock therapy in Russia after the Cold War, and the economic and political aftermath that reverberates to this day. Could such fears have prompted the return of subsidies in fuel prices? 

After a year in power, reality has started to sink in KK. Has academic idealism been replaced by pragmatism? Why the change of heart?

Let’s be real. The high cost of living has punctured the hustler dream. Why lose popularity when you can act? KK seems to have realised that the debate on the high cost of living will not die and touches the heart of the hustler nation. 

Well packaged, it can slow-puncture the 2027 bus. And passengers have been ‘lefting’ it in silence.

Even the team negotiating for KK with Azimio has accepted the cost of living can be part of the agenda. Why not preempt it by bringing back fuel subsidies, be seen as doing something for the hustlers? 

KK has also changed tune on debt. It is not that “evil.”  Will that remove the pressure to tax us more?

Let’s also overthink; could it be that KK has confirmed that taxes can pay for subsidies? 

Hard-nosed economists dislike subsidies, suggesting they distort the market. But hard-nosed politicians know subsidies distort the political market to their favour. And why bother when they do not pay for subsidies from their pocket? 

Curiously, subsidies are common in developed countries, and target strategic industries such as farming, or security.  They can also target vote-rich sectors. 

Why did we think we can be exceptional? Does return of subsidies indicate the academic wing of KK is losing to political realists and pragmatists?

The realists have realized that for all their economic worth, subsidies are a low-lying political fruit. The promised economic growth will take years. Subsidies are like first aid. This rethinking was about to happen as the new leaders went through the learning curve. 

Petroleum prices have benefited from subsidies. What of the shilling? Will it also be propped up? Possibly no. Subsidies also take care of the weak shilling indirectly. A weak shilling has led to high fuel prices.

Where do we go from here? One, clearly the economy has become a central issue in our national discourse. Two, the return of fuel subsidies shows the negotiators in KK - Azimio talks could be flexible, seeking a middle ground. 

Regression to the mean or centralism now characterizes our politics. Some think that is good for peace.

The risk to political centralism or regression to the mean is that when we keep flip-flopping, we lose consistency in policies which is a basic input in long-term economic growth. 

Why make hard decisions when you can easily bring everyone on board? Why ‘annoy’ people politically when you can appease them through ‘political subsidies’?

Sadly, even our intellectuals and pseudo-intellectuals have joined the regression to mean. They too flip-flop depending on who is in power. Intellectual watermelonism is now a reality, it came after political watermelonism had become mainstream.

It’s clear no one wants to bell the economic cat. Is that why we have not made a great economic leap forward in 60 years?

Will KK fail to achieve its economic objectives by being too cautious? Why fear taking bold decisions when it seems the storm is over?  Demos have fizzled out. 

There is precedence; just when we thought Uhuru had vanquished Raila, we got a handshake. What shall we get when we just thought Dr Ruto had silenced his critics? The Azimio - KK talks will either surprise or disappoint us. 

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