Bond trickle-down and bottom-up economics to up resource use

The trickle-down economics approach entails creating economic policies that advocate for the reduction of taxes to big firms and the rich. [Courtesy]

The last few years have seen the trickle-down versus the trickle-up (bottom-up) economic approaches become a political buzzword as the country heads to the 2022 polls.

This campaign has been hyped by slowed economic growth due to Covid-19 that has resulted in job losses and business closures.

Despite the popularisation of these economic approaches by the political class, Kenyans have little understanding of their meaning, workability and impact on wealth and job creation.

The trickle-down economics approach entails creating economic policies that advocate for the reduction of taxes to big firms and the rich.

It offers subsidies to reduce the cost of production in the hope that the benefits in form of jobs created through business expansion and value creation diversification will trickle down to the masses.

A growing economy needs a balance between the trickle-down and trickle-up economic approaches. [Reuters]

Although this strategy was used by the previous regime and is credited with macro-economic policies such as accessibility to stimulant packages in the last 20 years, analyses show tax cuts to big firms and the rich do not necessarily lead to wealth creation or benefits trickling down to the masses.

They also don't attract foreign direct investment. It rather widens the gap between the rich and the poor.

In most cases, investors will invest in areas where they are guaranteed more returns and security.

For instance, even with Kenya registering high economic growth figures before Covid-19, the gap between the rich and the poor continued to widen according to the World Bank, with less than one per cent of the richest Kenyans accumulating more wealth than the bottom 99 per cent.

This means the trickling down of this growth to the lower economic cadres has been minimal.

Then the trickle up, bottom-up or build-up approach entails creating economic policies that advocate for investing resources directly in the masses to build sustainable livelihoods and increase their consumption. This spurs demand that can lead to economic growth and job creation.

This can be done through the adoption of the cottage industry where resources available are used to increase production through value addition and market creation.

Improved infrastructure development in counties can also help to increase production. [Courtesy]

The devolution concept where the State allocates 15 per cent of the national income to counties to spur economic growth is a simplified model of trickle-up approach.

The counties were supposed to be production centres that develop systems to help in fully utilising the resources available. Other examples of the trickle-up approach include State economic stimulant packages to the youth and women fund, cash transfers systems and procurement preference for the youth and women.

Improved infrastructure development in counties can also help to increase production, create more jobs and boost economic growth.

A growing economy needs a balance between the trickle-down and trickle-up economic approaches.

We also need to develop a working structure to improve production at the base of the pyramid.

-The writer teaches at Kirinyaga University. [email protected]