Without Strong Institutional Framework, Mega Projects, Human Capital Cannot Bring Lasting Development

 For some time now an interesting debate has been raging on between two scholars; Dr. David Ndii of Africa Economics, and Dr. Bitange Ndemo, a former PS and presently of the University of Nairobi, School of Business. The energy, the passion and high voltage phraseologies used in the exchanges are impressive. The heart of the debate concerns on what Dr. Ndii sneeringly dismissed as the “delusions behind Kenya’s bullet trains, techno-cities and other mega projects” (DN Sept, 13). The exchanges were first ignited by the ‘arrows’ from Dr. Ndii’s intellectual quiver. His lead arrow argues that the “super cost” mega projects such as those 72 East Africa projects expected to cost $100 billion in the next 10 years were journey to a black hole, outright waste of public resources whose benefits to Kenyans and others now and in the future “is tomfoolery and is as fantastic as John Frum’s Second Coming” (DN, Sept 13). John Frum is a 60 years old religious mythology character in what Ndii called “Cargo cult”.
 Some of the mega projects that the economist is so contemptuously dismissive of include the Standard Gauge Railway (SGR), the Konza Techno City Projects and the planned injection of 5,000 mw-into the national electricity grid. These transformative, flagship projects were launched under the administration of the former President Mwai Kibaki or consolidated for implementation under the current Jubilee administration of President Uhuru Kenyatta   by “Dr. Ndemo and the mega-projects brigade” (DN, Nov. 8). Dr. Ndemo and his so called “brigade” have argued in favour of these disruptive, Vision 2030 projects and others in the pipeline. Their reasoning is anchored on a traditional, old beaten path of the history of development economics 101. The economics of development deals with the problems of the economic development of resource deficit countries such as ours. Developing nations are known to face multi-storied challenges of weak institutions and values of public services; low national savings; low per capita income; low ratio of capital to per head of population; low ratio of industrial output to total output; low level of education, high incidences of poverty and regional dualism.

  Regional dualism is the extent to which a country is characterized by large and increasing gaps of wealth and development among its major regions that is the degree of socio economic disparity among different counties as in our case; where a section of society still beholds pre-Newtonian attitudes towards wealth and the physical world. The sight of the pastoralists in the Rift Valley and Northern Kenya “grazing their animals while watching trains, cars zooming past and planes taking off” will be with us for a long time to come. And it is a good thing. Talk of dualism. Heavy domestic and external borrowings and under taking multi-billion shillings development mega projects in a country are some of the crucial steps towards addressing the problems of regional disparity, economic development and creating a solid threshold of physical capital for national prosperity.

 The ultimate concern of economics of development is the alleviation of mass poverty among the population, for as one economist, Reverend Philip Wicksteed put it, “a man can neither be a saint, nor a lover, nor a poet, unless he has comparatively recently had something to eat.” Alleviation of wide spread poverty in Kenya today where more than 85 percent of all rural households like these in Wajir, Mandera, Turkana, Marsabit and even in Baringo, for instance suffer acute deprivations according to the recently released figures by the Ministry of Devolution and Planning demand new formulations of what has been commonly referred to as the “big push” or “the minimum effort” economic theory.

County Focus for National Development
 In view of our evolving constitutional governance structure based on the theme “County Focus for National Development”, (CFND) there is revolution of the people’s rising expectations as they ask, “What is wrong with us?”  (Nyairo, DN, Nov 25) and this surge of expectations requires to be met head on and managed optimally well. In this context poverty maybe defined in western countries as a level of living that provides no margin above food, clothing and shelter. In our case, poverty is a state of living that cannot provide even access for food, clothing, shelter, health, education, security and sometimes even human dignity and hope.

 Investments in mega, economically sense making projects, not politically correct, “white elephant projects,” as were common features in many African countries in the three decades of 1960-90s, have been part of any developing country’s strategies of accomplishing the double requirements for socio economic prosperity: growth and development. Conceptually, whereas it is possible for an economy like that of Kenya to grow even to “double digit” in accordance with the aspiration of vision 2030, it is much harder to imagine development without growth. As we know, basically economic growth consists of rising national and per capita real incomes. However development demands a good deal more –structural change, technical advance, closing sectoral and regional, socio economic gaps and new resource discovery like the oil, gas exploration going on presently in Wajir and Turkana counties.

 To this end, in matters of growth, the proponents of Rosenstein-Rodan’s ‘big push’ mega project theory; instead of insisting on having explanations that are both sufficient and necessary, they prefer adopting explanations for economic ‘growth, “great lifter waves,” that are simply sufficient until proven otherwise by actual observations. For the sake of simplicity, what economists call parsimony, this article opted for minimum references to pile of data and mathematical models, even though some people might insist on “evidence, not beliefs”.

 The theory of “big push” or large, mega comprehensive programme states that proceeding step by step cannot pole-vault nations from the “slums” to the top of the league of nations in terms of economic development. One of my star lecturers at the University of Punjab, Pakistan, told us of a Filipino national named Jose Rizal who said in 1890 that it would be “silly to expect a structure of steel-meaning modern nations to stand on bamboo supports.” Rizal argued that “bamboonomics”, or the traditional social structures” fit for subsistence, rural farming (or pastoralism) under the colonial powers would no longer be appropriate for the post-independent states.

 This simply means that most of Kenya’s historical structural and governance systems such as the pre-Standard Gauge Railways (SGR) easily fit with the descriptions of “bamboonomics” which is no longer in congruent with the present and future needs of the country and its 21st Century population. The economic history of India, Japan, Mexico, Malaysia, South Korea, Singapore (although Singapore is too small a nation for meaningful comparison with Kenya; we are 828 times larger), and even more advanced countries such as the USA, Russia, and China attest to the conclusion that “only structure of steel” can support the needs of the people of the modern state as the demand for freedom mutates into the demand for quality of life – economic and social advancement to security and dignity. Kenya is not exception to the implications of these sentiments of Rizal, the Filipino.

 Dr. David Ndii, however, holds different views. He argued that although he was not against mega project per se, “the specific mega infrastructure projects we are investing in are mostly bad investments” (DN, Nov, 22). He stressed that “human being, not mega-projects will turbo – charge economy” (DN Nov. 8). He further argued that the sh 300 billion plus SGR project price would have paid for 250,000 degrees instead and given the country better “returns.” What I have found intriguing though, with his anecdotal disapprovals of “urban legends”, yet forceful articulation of his strongly held anti-mega projects position, was his anger and singular zeroing  personally on Dr Bitange Ndemo. Dr. Ndii mentioned by name Dr. Ndemo at least 12 times in his article of November 8th, incorrectly stressing that “Dr. Ndemo’s economic accounting is not the only deficiency in his argument; his understanding of economic growth is even more wanting-suspect,” closing with” he (Dr. Ndemo) and his ilk are in the business of summoning cargo,” thus reducing disturbingly to apparent personal vendetta what was otherwise objective and a great, issues based academic conversation.

 In his rejoinder to what he described as “a healthy intellectual debate,” Prof Mwangi Kimenyi argued that both sound mega infrastructure and “investment in human capital-education and training were necessary prerequisites to help fight poverty and engender growth (DN, Nov 15). He stressed it was “neither one nor the either”. Whereas this is true, we must accept that economic development is complex multi-dimensional problem and that more often than not we lack the necessary factual knowledge about some of the basic relationships involved in the process of growth of wealth and development, “particularly those relating to population growth, institutional imperatives, entrepreneurial motivations, political, social, capital project outlays and cultural prerequisites.

 The arguments in favour of education and training as bedrock of economic and institutional growth are unassailable. We agree the attainment of higher levels of education is such a universal goal for any responsible country and its people that it would be correct and logical to ascribe a high weight to human capital as such in the measurement of the level of development. One can rightly reason that in the ultimate philosophical sense, participation in the modern world and awareness of the range of satisfaction of which may be attained through education, might be regarded as major aspects of development.

 However, is Kenyan’s number one problem of economic development today under-investment in education and training of its youths relative to the population, the annual budgets, GDP and even countries in the same bracket in population and budgetary sizes? I do not think so. Presently, we have some 12 million children attending schools/colleges; over 260,000 teachers, the largest in East and Central Africa, over 30 universities for a population of about 42 million and an annual budget for universities, colleges, secondary and primary schools in excess of Ksh 300 billion (S3.3billion) which is more than combined budgets of the 47 county governments in the country.

  These figures are impressive by any measure, and comparison. The last time I was there, the numbers of children attending schools in Pakistan were almost the same as those of Kenya, yet Pakistan had population of 130 million. As an economist, Dr. Ndii knows very well the economics of education or even security and other social needs. Developing high human capital without the appropriate favourable institutional frameworks would simply result brain drain. That is how we lost the two Professors; Ali Mazrui and Ngugi wa Thiong’o to the US for almost their entire lives. The logic of economics of education does not allow cost effective investment to go beyond certain point on the marginal social cost curve and marginal social benefit curve. Have we already reached there as a nation where marginal social cost is overtaking the marginal social benefits instead of being equal? 

 Prof. Ali Mazrui   
Prof. Ngugi wa Thiong’o
“Brain drain: how we lost them to the US”

  According to the Economist magazine of June 8th - July 4th 2014, “college wage premiums”, which is the average gap between salaries for universities graduates and those with secondary school certificates is about 40% and in some cases the wage premium is disappearing but “there is no guaranteed windfall for all who don cap and gown”. “47% of university students in America and 28% in UK” do not complete their studies and never make to donning caps and gowns. What are the ratios in Kenya?    Looking at the current perceived state of insecurity in the country today, just in education, the citizens are asking “why so much security meltdown despite huge budgets?  What are the problems in both sectors?    

Sessional paper no 10, 1965
 High population growth in the country and huge investment in education would demand sustained efforts investing all kind of mega projects. That is why Prof Kimenyi is of the opinion that the country needs both human capital development as well as investment in mega projects. “Bamboo structures” can never support the demands of the modern state of Kenya.  The immediate problem, the gap facing us that the two scholars did not focus on, in my view, is the role of social institutions and personal values in the nation’s economic development. The so called “education miracle” would amount to nothing without strong personal values and institutional framework, high level intersection of formal and informal rules, laws, and personal values.

Before examining the nature, importance and relevance of institutional frameworks to economic growth, let us revisit a popular, generally accepted explanation for the socio economic marginalization of an arid and semi-arid lands (ASAL), all northern Kenya counties included, resulting the widely held view that there were two Kenyans:  “Kenya A and Kenya B which began formally in 1965. Dr. Ndii traces the genesis of Kenya ‘A’ and Kenya ‘B’ to Sessional paper Number 10 of 1965 (DN, Nov. 19) as he quotes that historical document “one of the problems is to decide how much priority we should give to investing in less development provinces. To make the economy as a whole grow as fast as possible money should be invested where it will yield the largest increase in net output”.

The period 1963 - 1966 as we know, were historical watershed years full of whirlwind activities for the nation as a whole. The emphasis was on “consolidation”. Besides political and empirical challenges of the day, prioritization of the development agenda was “the elephant in the room” for the first administration of President Mzee Jomo Kenyatta and his cabinet. When faced with such kind of economic challenges as a new nation, political contentions aside, as any young economist and trained public administration official would acknowledge, there are two approaches to choose from: balanced growth approach and unbalanced growth.  Balanced growth approach advocates for “incrementalism” and simultaneous engagements of all sectors and regions, what the military calls “the overwhelming force strategy” - the locust approach. The basic assumption in this approach is that there are sufficient resources to go round. Our current devolved approach of Count Focus for National Development (CFND) is based on the balanced growth model. This strategy was not feasible in the first two decades of our independence, particularly for reasons of insufficient resources, human capital limitations and the multiple “national consolidation whirlwind issues of the day”. In 2013, this dream of balanced development has become a reality, a number of emerging governance issues and intergovernmental relations notwithstanding.

Unbalanced approach, however, as a strategy of development contends that deliberate, unbalanced of the economy, in accordance with a redesigned strategy is the best way to achieve economic growth for a new country.  The Pareto principle of selecting the 20 percent projects that have would have greatest positive impact on the lives of the largest number of the population would apply here. This is the approach Egypt for example selected in 1952 and even before. Egypt concentrated its economic efforts on the Nile Delta which was the lifeline and the bread basket of the country. This is common sense and for your information common sense is “belief.” It does not require advanced university degrees in “economic accounting” or in any other discipline. For instance if in 1965, one were asked there was enough money to build only one hospital to serve a population of 400,000 people in a given region, common sense would inform us to locate the hospital in a place with highest population density. In the areas where the population was scattered, the people will use the hospitals in the high density areas as referral. That is how the concept of “provincial hospitals were developed in the 70s in the first place.

In making the policy paper of 1965, the leaders of those days apparently had good intentions and grounded their ideas on sound economic theory; the unbalanced growth /development approach. Down the years, with hind sight a number of things went wrong. But the policy intention was valid. What is misplaced, misrepresentation and preposterous is attributing our 2014 economic problems and those  economic issues which would emerge in 50 years hence in 2065 to the sessional paper of No 10 of 1965. We need to be more clever for that and be more truthful to ourselves.

“President Mzee Jomo Kenyatta’s 
policy paper of 1965 was found on unbalanced growth approach”

Clever man
In a conversation over a cup of tea, I asked a friend of mine named Mr. Mike Simiyu, what he thought of Dr. Ndii’s Saturday Nation’s articles? I knew Simiyu was a fan of the economist’s articles. My friend, Simiyu said, “Dr. Ndii is a clever man, a patriot. But if you want to know why he felt uncharacteristically disappointed, angry, read his article of July 19, 2014 titled.  “We’ve been here before: How Jubilee is busy winding back clock”.

Simiyu removed the article from his briefcase and read it for me. He rhapsodized over with effective panache of Lake Victorian, Western Kenyan raconteur the content of that article of July 19. Simiyu passionately argued that “great nations” everywhere built on character and brainpower, human capital. “The scholar economist is simply an example of a person with real talent who bitterly feels “excluded”- lacking inclusivity” in the development of his country despite being immensely qualified. How can we do “catch up” when were allow rare brains such as Dr. Ndii to go to waste, reduced to writing complaining newspaper articles for a living?”  Simiyu continued “That is why the good doctor is angry and whether we agree with him or not as he asks in Kikuyu in his article the rhetorical question, “Are we going to slaughter for the hyena second time?”

Economists have always said that one of the key prerequisites for economic development is quick emergence of political, social and institutional framework, which exploits the impulses to expansion in the nation’s modern sectors and give growth an outgoing character. Although very young, Kenyans have this framework in place, yet the nation is facing crises in every turn. This is so because as humans, there is no such thing as perfect society. As one humanist puts it, “Show me a country without prisons, courts and poor component in their society and I will show you a perfect nation”. Even when international delegates and official interacts in formal and informal businesses what becomes obvious behind the “hardware” are nexus between dominant values, institutional ethics and the state that drive the industrial and economic success of many nations.

Lacking efficiency
 There is a joke to the effect that there was an international conference on “lack of efficiency and fairness” by world’s governments in their procurements systems and public expenditure in general. The conference took place in Moscow, Russia. Those who attended included delegates from Egypt, Kenya and Somalia. During the afternoon 4 O’clock tea-break, while the delegates from Egypt, Kenya and Somalia were together in a corner having their exchanges, they were joined by a Russian delegate who was also their host.

 Then, as the four delegates conversed, an international journalist approached them and asked the Russian delegate first.  “Please what is your opinion of lack of efficiency and fairness by governments?” the Russian replied, “Opinion! What is opinion?”

 The journalist then moved to the Egyptian official and asked, “Please, what is your opinion of lack of efficiency and fairness by governments?” The Egyptian without blinking an eye responded, “What is fairness?”
The reporter then moved, to the Kenyan delegate and asked him, “Please, what is your opinion of lack of efficiency and fairness by governments?” The Kenyan delegate answered, “Efficiency? What is efficiency?”

 The journalist went to the delegate from Somalia and asked, “Please, what is your opinion of lack of efficiency and fairness by governments?” The delegate from Somalia responded, calmly, gesturing with his index finger,” I have small idea of what is ‘govenrment’, but what is please?”

 Whereas today on one hand, on average globally people are living lives of abundance beyond the wildest dreams of our ancestors, and humankind, through accumulated knowledge, is able to land a robot on a comet orbiting the sun 300 million kilometers away at speed of 300 thousand kilometers per hour, on the other hand from race riots in the USA over killings of black youths, to mass deaths and destructions in Syria, Iraq, Tunisia, Libya, Ukraine to the tragedies in Somalia and Nigeria, attacks in Kenya’s Mombasa, Mandera and Turkana, one would be forgiven for thinking that we are living in the midst of piece meal, silent yet cruel,  Third, World War and the planet is hurtling fast towards an apocalypse.

Institutions, Institutions, Institutions
 Our present crisis is crisis of institutions.  We are told by the Controller and Auditor general, that over 35 per cent of the national budget of about Sh 1.6 trillion ($17billion) is lost every year through “chicken eating businesses”. Is this a validation in 2014-2015 in Kenya of what Nobel laureate Joseph Stiglitz described the “Roaring nineties” as “the greediest decade” in human history?   A recent audit of government staffing revealed 12,000 ghost employees costing over Sh 7 billion yearly. For sure, we cannot build mega projects and highly educated society on the “quick sand” of value free nation, “it is our time to eat” syndrome. This is a crisis of integrity, not intellect, not human capital. A Somali singer asked the question “when we fall ill, we use medicine. If the medicine itself become ill, with what shall we treat it?”  Has the whole ethos of “duty, honour, and country” replaced by “me, myself, I and my village?” 

 Many people are asking, “Where have all the good people gone? Where have all leaders gone?” Institutions mean both effective organizations that enforce the rules of the “game” of society and the “rules” such as the laws, the constitution and informal norms of society that guide social interactions and safety. North and South Korea, a one nation until at the end of World War II, are divided by the 38th parallel, yet economically the South is ahead of the North some 100 years all because of institutional factors: people, integrity, competence and country.  Singapore is  a great example of a city built on, yes human capital with a GDP of $55,000 against ours of only $1,200.  Two scholars, Daron Acemoglu and James Robinson researched on “Why Nations Fail” and made one major conclusion as the “cause,”  “Institutions, institutions, institutions”.  

 That renown American economist, Joseph Schumpeter, pointed out that a nations economic development greatly depended on the supply of entrepreneurs  which also depended  on the “social climate, habitat”, reflecting the whole social values-honour, trust, success, political and socio-psychological atmosphere within which entrepreneurs should and must operate. In Mandera County today, professionals are ‘moving out’ in droves because of insecurity yet security is an institutional issue. All these worrying concerns and tragedies notwithstanding, Kenyans are very hopeful and see the glass as half full. Thank God we have great country and great people. Devolution is a work in progress and will take some fifteen years before it runs on “auto-pilot”.

 Scholars such as Dr. David Ndii and other thought leaders who feel excluded in making a difference, need to be invited “on the mega project platform” and given opportunities to become ‘insiders’, benefit the whole nation with their talents, leadership and values for the sake of posterity. Citizens of a great nation can only reach a whole new prosperous, competitive levels of quality of life on the backdrop of combined mega projects, world class education and the best of institutions formal and informal.

 In the meantime, I hereby send my heartfelt condolences to the family and friends of all the 64 heroic, dear Kenyans who were killed at the savage attacks on the Mandera – Nairobi bound bus and Mandera quarry on November, 22 and December 2nd respectively, . The deaths of those brave, patriotic, professional young Kenyans should never, must never be in vain.  The best way to honour them is for us, the living, to ensure Kenya endures forever and remains united, peaceful, one nation, one people under one God.

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