To begin with, ordinary citizens must be more involved in economic policy decision-making. African governments often restrict key economic policies to experts, “technocrats” and foreign advisers, and insulate key public institutions such as central banks, fiscal authorities and finance ministries from democratic scrutiny.
However, the core issues of economic policy reforms – fiscal stability, debt repayment and sustainable budget deficits – often require difficult choices as they affect social groups, communities and regions differently. Involving citizens in economic policy formulation helps manage conflict over policies. Economic institutions must involve citizens, civil society and stakeholders in policy-making.
Increased public participation brings 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.
African countries also need to democratise the market. Some of the East Asian “tiger” economies have “governed” the market, setting fairer rules, oversight institutions and regulators. 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. But both state-owned and private companies must become democratic corporate citizens.
They must practise good corporate governance, treat employees fairly and be responsive to stakeholders, local communities and ordinary citizens. African financial oversight institutions must better enforce rules to prevent corporate tax evasion, illicit money outflows and leakages from the balance of payments.
Global Financial Integrity, an NGO, has reported that Africa loses about $50 billion 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 mis-pricing, and payments which are not declared.
African countries should establish social pacts between government, business, labour and communities, in which each partner agrees to key deliverables to grow industries. Social pacts should include foreign investors, who would sign up to partnerships with local companies, and agree on transfer of technology, skills and fair labour practices.
Corporate democracy at large state and private firms should be encouraged. Employee ownership, stock options and representation on boards is a viable form of economic democracy. Employee Ownership Index surveys have shown that
shares in companies with significant employee ownership have risen three times as fast as their listed peers. A Cass Business School report showed that companies with employee ownership had 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, as in countries such as South Korea. The potential pressure by citizens who invested their hard-earned money in them would ensure companies were managed effectively.
A key part of economic democracy is to spread the growth dividend to the most vulnerable in society by providing social safety nets, even if very basic. This would strengthen social stability, which is necessary for economic reforms.
Economic democracy is essential at a global level too. The global market trade and ideas are still skewed against African countries. Decisions and events which are triggered in industrial countries, over which African countries have little say, often undermine the well-being of African countries. When the US decided in 2014 that it would roll back its programme to stimulate its economy, in response to the impact of the global financial crises, many developing economies were negatively impacted.
Many investors in developing countries feared the US Federal Reserve’s decision would trigger capital flight from these markets, and took their money to what they perceived to be “safer” industrial havens – the US and Europe. This caused herd selling of the currencies of developing countries, and caused their currencies to slide.
Many developing countries were forced to raise interest rates to help steady their currencies, which undermined economic growth. The governor of India’s central bank, Raghuram Rajan, has rightly argued that it is unfair that the US can adjust its 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, 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.
Only when African countries have the space to decide what policies to pursue can they turn their economic gains into what UN Conference on Trade and Development Secretary-General Supachai Panitchpakdi calls “real productive capacity”.
Global economic institutions must also be democratised. African countries must pressure the IMF and World Bank to improve the governance of global capital markets and ensure there’s stability and that Western countries don’t destabilise African and developing countries through unilateral monetary policies.
The US and Europe-dominated IMF, the World Bank and International Finance Corporation (IFC) have dominated development finance since World War 2.
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 African and developing countries have a greater say in the control, policies and ideas of the IMF, World Bank and IFC, their economies will remain at risk.