The power of economic democracy to unleash shared economic growth, development and well-being is often not fully appreciated. To make economic growth more inclusive, African governments must strengthen economic democracy within their countries. What would be the pillars of an economic democracy model for African countries?
The first of these is that economic policy and decision-making will have to be democratised. Secondly, the African markets will have to be democratised. Thirdly, both public and private companies in Africa must behave as corporate democratic citizens. Fourthly, the creation of social enterprises, run by ordinary communities, is crucial to democratised markets. Fifthly, African countries must provide social safety nets – even if very basic; and introduce redistribution programmes for the historically disadvantaged.
Sixthly, African countries need to build social pacts between government, business, trade unions, civil society and communities in Africa to foster democratic markets, inclusive growth and development. Seventhly, economic democracy is essential at a global level also. African countries have very little say in the current global economic system – decisions, policies and institutions. In fact, policies, decisions and events which are triggered in industrial countries, over which African countries have little say, often undermines political and economic democracy, peace and individual well-being in African countries.
Democratising economic policy and decision-making
For starters, ordinary citizens must be involved in greater measures in decision-making, participation and debates on economic policy. The challenges for African countries for sound macro-economic policies increasingly means that governments often restrict key economic policies to experts, “technocrats” and foreign advisors while insulating key public institutions such as central banks, fiscal authorities and finance ministries from democratic scrutiny (Gumede 2004).
However, the core issues of economic policy reforms – fiscal stability, debt repayment and sustainable budget deficits often require hard choices as they affect social groups, communities and regions differently. Involving citizens in economic policy formulation helps manage conflict over policies. Economic institutions involved in economic policy-making must involve citizens, civil society and stakeholders. They must be responsive, accountable and make their decisions in the widest public interest.
Increased public participation and debate about economic policy decisions bring new ideas, improves the quality of economic policies and secures greater ownership of economic reforms. Importantly, it improves the efficiency of resource allocation – a major weakness in most African economies.
Democratising African markets
African countries need to democratise the market also. Some of the East Asian ‘tiger’ economies have ‘governed’ the market – setting fairer rules, and establishing oversight institutions and regulators (Wade 1990). African countries need effective financial oversight institutions to prevent or deal with market failures. Parliaments must play a more active role in market oversight. Civil society, the media and activists also have a big role to play in market oversight.
But both state-owned and private companies must become democratic corporate citizens. They must practice good corporate governance, treat employees fairly and be responsive to stakeholders, local communities and ordinary citizens, and take care of the environment. Good corporate democratic citizens abstain from tax avoidance practices.
Global Financial Integrity (2015), has reported that Africa loses around US$50bn every year in illicit financial outflows, as companies use fraudulent schemes to avoid paying tax, undermining development, economic growth and public service provision. Some of these practices include profit-shifting strategies to hide income, trade mispricing and payments between parent companies and subsidiaries which are not declared.
African countries should consider establishing social pacts between government, business, organised labour and communities, in which each partner agrees to key deliverables to grow industries in a sustainable way. Social pacts should include foreign investors, whereby foreign companies’ signs up to partnerships with local companies, and agree on transfer of technology, skills and fair labour practices.
Corporate democracy at state and private firms
Corporate democracy at both large state and private firms should be encouraged. Employee ownership, stock options and representation on boards is a viable form of economic democracy. Surveys from Employee Ownership Index (Capital Strategies 2014), has shown that shares in companies with significant employee ownership have risen three times as fast as their listed peers. A separate report by the Cass Business School (Lampel, Bhalla and Jha 2010) showed that companies with employee ownership have higher productivity, strong employee commitment and higher profits.
Traditionally, African governments have privatised state-owned companies to generate revenue. But there is also a place for ordinary citizens to be shareholders in state-owned companies, as is the case in countries such as South Korea. Local communities could be organised into co-operatives or community trusts which could become the vehicle for community-based shareholding in companies.
The potential pressure by ordinary share-holder citizens who invested their hard-earned money in them would no doubt ensure companies are managed effectively. A key part of economic democracy is to spread the growth dividend to the most vulnerable in society. By companies expanding shareholding to employees and surrounding communities will help extend the economic growth dividend to more Africans.
Social enterprises are key to democratise African markets
Social businesses set up by local communities and entrepreneurs to provide for local needs are crucial to deepen economic democracy (Brugman and C.K. Prahalad 2007; Yunus 2009). In most African countries, with governments failing to deliver effective public services and to protect people; ordinary citizens are already pursuing alternative governance systems to survive failing states.
Civil society, could for example build their own social enterprises in partnerships, to get vulnerable communities to provide their own food, products and ‘public’ services and ultimately to sell the surpluses of these. These social enterprises could be in the areas where public services are not working: for example, community-driven water sanitation, renewable energy and education provisions, or agricultural production.
Local rural communities could be organised into co-operatives, through which they collectively can produce the products that the local and export markets need. Civil society can then push for the products, services of these social enterprises to be inserted into the supply chains of big business, whether state, local private or foreign ones.
Providing social safety nets to the poor
African countries must provide social safety nets – even if very basic; and introduce redistribution programmes for those that have been historically disadvantaged. This will strengthen social stability. The importance of social rights to deal with inequalities is often overlooked in developing countries. Social rights include the right to social justice, to equitable access to public services and social security.
However, social protection, should not be a standalone policy, but linked to democratic, developmental and industrialisation programmes. In African countries, with limited resources, it is crucial to link social welfare spending to responsibilities. African countries should look at how to combine social security or cash payments to the vulnerable to responsibilities. Recipients of social grants could for example be contracted by the state to perform certain duties, such as oversee their children’s education, health and safety.
Recipients of social grants could also be obliged to do public and community work in return for getting a government social grant. For example they could spend a day a week patrolling the local streets, monitor schools and local public parks to keep these spaces safe from crime, violence and drugs. Those receiving social grants could also be assigned to monitor the behaviour of public servants, such as the police, municipal officials and those working for government agencies.
Brazil for example introduced a social protection programme called the Bolsa Familia Program (BF), which transferred cash to poor families in return for them ensuring their children attend school and receive preventative healthcare. China has introduced social welfare in rural China which is linked to families who received it, agreeing to 9 years of compulsory education and health for their children.
Another crucial strategy is for governments to target poor households by providing them with assets (land), relevant education and skills which industry needs, so that they can be self-sufficient. Similarly, affirmative action and empowerment programmes for the poorest based on building assets are essential.
It is very likely that recipients of social grants would be unskilled. Adults who receive social grants could be given practical training which is not dependent on a prior high level of education, for jobs such as community nurses, kindergarten carers and as artisans.
Social grants should also be linked to industrialisation. Poor families in rural areas could be helped by providing them with commercial farming techniques, basic layout capital and access to land, to at least produce food for themselves. Subsistence farmers could be trained how to produce different products that have a more commercial value domestically and abroad; or to produce what the country needs, but does not have.
Rwanda introduced the “girinka” or one cow per family initiative in 2006. In terms of this, poor households were each given a dairy cow. Not only did this milk help provide a balanced diet to the poor, it also helped provide fertilisers and simultaneously established a diary industry.
Social pacts between government, business and civil society
Neither business, government nor civil society alone can drive development, inclusive economic growth and prosperity in African countries. Social pacts between government, business, trade unions, civil society and communities in Africa can foster democratic markets, inclusive growth and development (Gumede 2011, 2012, 2013, 2016).
Social pacts can also be fostered in African countries between governments, trade unions, local communities and foreign investors centred on foreign investments in these countries. In these investment social pacts, foreign companies cobble together agreements with governments, trade unions and communities setting basic employment, environmental and productivity standards – which every social partner must adhere to.
Furthermore, as part of the social pact, there should be significant employee ownership; and local communities and businesses should be involved in the supply chain of the businesses. For another, companies should as part of their empowerment programmes, provide skills training to both their employees and local communities.
As part of such social pacts, Africa’s informal sector, small and medium-sized business should become part of the supply chains of private and public sector companies. African companies should be the local suppliers of inputs to foreign investors.
But there should also be partnerships between foreign investors and local African companies. There should be the transfer of new technology, efficiencies and management skills to Africans.
Civil society could play a key role by being one of the social partners in such investment pacts – or monitoring, with the local media, that such pacts are adhered to. Such investment social pacts will help democratise markets in Africa.
Democratising the global economic system
Economic democracy is also essential at a global level. The global market, trade and ideas are still unequal and skewed against African countries (Bond 2004; Gumede 2002). So unfavourable is the current global economic system that policies, decisions and events which are triggered in industrial countries, over which African countries have little say, often undermine the well-being of African countries. A case in point was in 2014 when, in a response to the impact of the global and Eurozone financial crises, called “tapering”, the US decided that it would roll-back its programme to stimulate its economy. The result was that many developing economies were negatively impacted.
Many investors in developing countries feared the US Federal Reserve, the country’s central bank, decision would trigger capital flight from these markets, and took their money to what they perceived is “safer” industrial country havens – the US and Europe. This caused hard-selling of the currencies of developing countries – and causing their currencies to slide.
Many developing countries were forced to raise interest rates to help steady their currencies, which undermined their economic growth rates. The Governor of India’s central bank Raghuram Rajan (2014) have rightly argued that it is unfair that the US can adjust its domestic monetary policy to calibrate the dollar to stimulate local jobs, growth and development, in such a way that it undermines the currencies, trade balances and foreign reserves of African and developing countries. For example, if developing countries hold dollar-denominated debt, and their currencies weaken against the dollar – their debt burden rises.
Developing countries must pressure the International Monetary Fund (IMF) and World Bank to improve the governance of global capital markets.
In the current global economic system, developing economies do not have the policy independence to use monetary and fiscal policies to stimulate their own economies – lest they face a market, investor and Western media backlash. Only if African countries have the space to decide what policies to pursue, can they, what United Nations Conference on Trade and Development (UNCTAD) Secretary-General Supachai Panitchpakdi calls turning their economic gains into “real productive capacity” (2011).
Global economic institutions must also be democratised. African countries must pressure the IMF and World Bank to improve the governance global capital markets and ensure that there is stability and ensure that Western countries don’t destabilise African and developing countries through unilateral monetary policies.
The US and Europe-dominated IMF, World Bank and International Finance Corporation (IFC), have dominated development finance since the Second World War. They are dominated by Western countries. All three have been criticised for being biased towards Western countries at the expense of African and developing countries. Unless these countries have a greater say in the control, policies and ideas of the IMF, World Bank and IFC, their economies will remain at risk.
There can be no sustainable democracy in Africa unless there is economic democracy. To argue otherwise is a mistake. Building democracy in Africa is therefore is a twin project of building both political and economic democracy. African democracy needs both political freedom and economic freedom – and of course, social, cultural and individual freedom.
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