Historical insight into how wages were managed

By Silvester Kasuku

For all the attention the wage-bill debate has attracted, few pundits have examined the underlying structure of economic policy in Kenya. Without a longer historical and strategic view, the debate might fall into a sterile exchange of statistics. In a two-part contribution, I hope to remedy the absence. We start, this week, with a historical overview.

Throughout its independent history, Kenyan economic policy has favoured production based on about 30 per cent of the country’s land space — what have often been referred to as high-potential areas, roughly defined as those arable parts of the country where primary export products could be grown by rain-fed agriculture. Revenue generated from about 30 per cent of the country’s land had to provide services for the entire country.

One consequence of these facts of geography and policy is a recurring cycle of economic difficulty: every decade or so, the government finds itself compelled to rebalance wages, because revenue is unable to keep up with demand for public investment and services. But let us return to the origins of the problem. The colonial government outlined the Swynnerton Plan in 1954, promoting the concentration of investments in high-potential areas. It had two core aims: to draft Africans into the national economy through agriculture, while entrenching its control of economic growth.

The first post-independence government crafted Sessional Paper No.10. Again, the economic agenda was to concentrate resources in high-potential areas. Successive independence governments prepared policies that reinforced these principles. There was continuity in pre-colonial and post-colonial economic policy.

For nearly two decades, that policy bought growth and development. In the 1960s and 70s, GDP growth averaged 7 per cent and 7.8 per cent, sustained by rapid expansion of agriculture; infrastructure development to service the economy; and a prudent fiscal policy that kept inflation low. There was also substantial infrastructure development along the transport corridor from Mombasa through Nairobi to Malaba, easing transport and opening markets.

For all the government’s success, the oil crises of 1973 and 1979 slowed growth, and demonstrated that we were prone to external shocks. Our growth and its proceeds remained imbalanced and inequitable. It also encouraged rural-urban migration, which put pressure on urban infrastructure and services, leaving the urban poor among the most vulnerable of our people.

In a bid to strengthen rural investments and create jobs in rural areas to stem urban migration, the government devised the District Focus plan of 1983, which devolved government services to the district level. Though aimed at decentralising services and attendant resources to the districts, its effects were modest, partly because remote sections of the country remained inaccessible for lack of roads.

This was symptomatic of the new reality. Investment in infrastructure declined in the mid-80s, as unemployment and the cost of living grew. The gap between government revenues and the costs of services and employees widened, partly because the core of the state was endemically overstaffed.

The policy response came in 1986, in Sessional Paper No.1 on Economic Management for Renewed Growth — the point at which the structural adjustment programmes beloved of international financial institutions became central to the management the Kenyan economy.

Perhaps its most memorable prescriptions were the introduction of user fees for certain public services; the encouragement of private-sector participation in the provision of services which had previously been the preserve of government; retrenchment in the public service; and rural industrialisation.

Perhaps the last great policy intervention before the NARC government was 1997’s Sessional Paper No. 2 on Industrial Transformation.

But the measures introduced in the Kibaki years have probably reached their peak and are unlikely to contribute to any significant economic growth and development going forward, as the wage-bill debate shows. If we are to escape our cycle of boom and public bust, we must break with the history of our economic policy. That is the topic of next week’s column.