Agrarian economies never collect enough taxes to fund their budgets. Government budgets are funded – to the exclusion of foreign aid and exploits in the extractive industry – by productive enterprises from which governments make profits.
The logic of taxation is after productivity (or as is in the Islamic tradition, after an individual’s expenditure—since individual welfare comes ahead of collective responsibility). To this end, governments can then tax people for whom it has created opportunities for income.
Imposing taxes on paupers, risks not only hostility – as the taxed fight back either through evasion or open violence – but is also deterrent to creativity/investment. Even the colonialists understood this better: They taxed people after creating them avenues of income.
They thus introduced and forced the colonised to grow coffee and cotton from which they could then be taxed. I mean not to justify colonialism, whose evils have been thoroughly documented, but we need to appreciate the colonialist logic to taxation.
Why tax people who are eking an existence writing blogs or riding motorcycle taxis! If this is not a political gamble to bankrupt and keep the governed in servitude, it is outright idiocy.
We will always return to the1980s – specifically the time of structural adjustment programmes (SAPs) – as a defining moment in our history.
African agrarian economies were destroyed when they were left to the mercy of the markets. This is when government moved away, not only from investing and owning enterprises, but also supporting local farmers in the countryside.
The argument then was that the market will sort itself – demand will inspire more production. On paper, this was superb, but in practice, it was a disaster. A couple of years down the road, African economies were shattered.
The argument that public enterprises were failing because the public servants did not have enough motivation to work well as they would have done if they were private enterprises (following Peter Ekeh’s analytical amnesia about his two publics) was simply ridiculous.
The absolute silliness of this reasoning became even more visible when World Bank and IMF actually had to forge accounts to show that public enterprises were struggling. Plenty of scholarship has showed that Uganda suffered a double tragedy with SAPs:
The moment of these reforms came at a time when the men in office had just arrived from the bush. Poorly educated, and hungry, many saw in SAPs an opportunity to reward themselves for their fight to power. Like carnivores starved for months, they went on rampage bankrupting the country and also leaving it incapable of any productive business.
We are living in a moment of the failure of privatisation, which was exacerbated by the actors of the time. Government has no other source of income except taxes and grants.
Taxes are thus viewed as a remedy for budget deficits. But this is rough-and-ready economics. Government should be a manufacturer, service provider and trader.
Imagine all the profits that private telecommunication companies – as Uganda Telecom Ltd limps on – make and expatriate to South Africa and India?! Imagine all the money that UMEME is stealing and expatriating to England and South Africa!
Imagine Uganda Airlines up and running. Can you imagine there was a time, after the mismanagement of Uganda Coffee Marketing Board, and disposal of almost all its properties (residential houses, warehouses, land and equipment) in Kampala, Mombasa and London, Uganda placed its major cash cow – coffee export – in the hands of a private Germany-born investor?
This fellow made a lot of money from several dubious deals, before government woke up to cancel the contract. This is list of missed opportunities is long.
Surely then, Uganda’s so-called economists – in Uganda Revenue Authority, Bank of Uganda, Ministry of Trade and Investment, Uganda Investment Authority – have to get their act together, and appreciate that (a) this is an agrarian economy, which can never produce enough taxes and (b) the present logic of taxation actually stifles productivity.
I am not arguing for nationalisation, but rather a state-led economy. Just the way we are excited about oil exploits – hoping we haven’t given all our rights to a private investor – as government with most resources (HR, borrowing, supervision, etcetera), we ought to be excited about starting big business, and making direct profits.
The argument that public institutions or businesses often struggle because workers do not perform at the same level as they do under private administrations is not only weak but also ahistorical.
The author is a PhD fellow, Makerere Institute of Social Research.