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Trouble in paradise: Rent seeking threatening the Ethiopian developmental state

Trouble in paradise: Rent seeking threatening the Ethiopian developmental state

Nobel Laureate like Joseph Stiglitz credited Meles Zenawi for concocting an original development paradigm, one that is fit for the underdeveloped African States. Meles prescribed a strong activist state for African countries which need to escape the trap of poverty and conflict urgently. He even went ahead and implemented his experimental democratic developmental state in his home country where he oversaw relative success before his died. Now, Meles' developmental state looks to be facing problems, writes Asrat Seyoum

Perhaps one of the most debated issues in Ethiopia politics in the past decade or so is the appropriateness of developmental state model for a country which emerged from years of economic and political strife. Following the defeat of the Derg in 1991, Ethiopia just like its African peers embarked on the implementation of a range of liberal policies which among other things capitalized on economic and trade liberalization and massive privatization measures to unleash its growth potential.

The first decade of Ethiopian Peoples' Revolutionary Democratic Front (EPRDF) reign under the leadership of the late PM was busy implementing these measures and trying to kick-start the revival of the Ethiopian economy. The success was limited to say the least and the leaders at the top echelon of the party knew that properly. That is when the party went back to the drawing broad and announced that it is undergoing one of the biggest self-renewal projects in its history. At the other end of this process, EPRDF announced that it come out better and reinvigorated and with a new plan to stir the nation into new era of economic progress—developmental state model.             

The architect of the whole system was the late Prime Minister, Meles Zenawi, who apart from devising the developmental state a la Ethiopia wrote articles and one manuscript for a book, on personal capacity, regarding the importance of developmental state in Africa. For whatever reasons, Meles looked to be frustrated with the existing growth paradigm in Africa and to that effect he proposed a new one—the so called democratic developmental state.

Clearly, the two growth paradigms and styles of governance which have punctuated the African states for many decades after independence are not working, Meles argued, in his manuscript “African Development: Dead Ends and New Beginnings”. He was referring to what he called the purely “predatory state” and the highly rent-seeking political system which governed most African countries immediately after independence.

Later on, according to Meles’s observation, it became abundantly clear that the rent seeking politics was not sustainable for Africa and many countries were forced to return to the new liberal paradigm which was predicated on the basic proposition of market efficiency and highly restrained government. Although post-assessment of the outcome in Africa is on his side, Meles’s focus to discredit the new liberal paradigm was the theoretical basis of the paradigm. And that gave rise to the one of the most cited political economy terms in Ethiopia—rent-seeking.

A term coined by Gordon Tullock, a US political economist, it was at the center of neo-liberal paradigm when arguing in favor of restrained government in Africa. Market efficiency and pervasiveness together with rent-seeking theories has led the neo-liberals to reject the idea of an activist and interventionist state in Africa, Meles wrote. As far as market efficiency assumption go, the late PM offered strong argument involving market failure and the inability of the market to take countries out of poverty trap and into a growth trajectory. Nevertheless, the rent-seeking theory, which argued that if African states are big enough to affect resource distribution on a massive scale, they would fall prey to the trap of rent-seekers and will start to work for capitalist that would spend the rent they have received from the government on a socially wasteful economic activity was particularly tough one to defend.

On the grand scheme of the matter, the issue was about the level of intervention of the government and the need to promote growth in African economies. Hence, the question was quite easy, is it market or government that would be best suited to overcome structural market failures in Africa and bring about economic growth? And on another level, what are the costs of letting government become big and more interventionist, should governments prove to be more efficient than markets?

Meles pretty much trumped neo-liberal point of view by arguing that government activism could be the only alternative to expedite growth in Africa. But, the risk of rent-seeking politics dominating the developmental project was quite high even by his admission. He proposed a big activist developmental state to stir development but carefully prescribed what the nature of this government should be— a coalition of strong-willed developmental groups and individuals with incentive to suppress rent-seeking tendencies in the economy. What one can learn from this is that the architect of the Ethiopian developmental state was well aware of the pressure from rent-seekers in the local economy; and how a government with the mission to create artificial rent via its state activism will be a target with a bull’s-eye sign.

So from the beginning, the term “rent seeking” caught on in the Ethiopian political landscape. It soon entered the vocabulary of the EPRDF political cadres as a preferred term or a label that is given to “anti-developmental” forces. However, the extent to which the term is understood still remains to be questionable, according to experts. Perhaps classic manifestation of the envelop usage of the term “rent-seeking” and little understanding of the inner-meaning and pattern is manifested in what the famous Haile Gebresilassie has once said: “I have a commercial edifice which I rent out to businesses and of course earn rent on my property. Does that mean that I am rent-seeker?”

Habtamu Alebachew, a lecturer at Mekelle University, in his article that explored the sociological origin of rent-seeking in Ethiopia, argued that the many officials in the public sector employ this term without fully detailing or perhaps not grasping the full meaning, pattern and manifestations of the term rent-seeking. This according to him have led the public into thinking that as long as one stay out of illegal activities and pays its taxes as any law abiding citizen it would completely absolve him/her of being a rent-seeker. Or, the reverse could be true and those who are not actually displaying any rent-seeking tendencies would begin to question themselves.

Rent-seeking as it was first used by economists apply to a tendency to seek undue benefit from a certain economic or non-economic activity and make socially wasteful effort to acquire rent. As matter of fact, there is noting that imply illegality in seeking to acquire rent or collecting the rent. Of course, with the exception of the methods of acquiring the rent; indeed illegally obtained rent could still be considered as an illegal activity. Costentinos Berhe, lecturer at the Addis Ababa University (AAU) School of Graduates Studies, argues that rent is basis for the economy. “What is referred to as rent-seeking is not what is understood in Ethiopia. It is a return obtained from an activity that is not value-adding to the overall economy,” he told The Reporter.

Contrary to the undue envelope rejection of the rent-seeking concept, rent is one of three categories of incomes besides profit and wages. It is income earned on the right of ownership of asset whether fixed assets such as land, buildings, vehicle or financial resources (interest rate being rent earned on financial resources) and the return on more intangible properties like patent and property rights. In fact, the misconception has something to do with the wrongly interpreted Amharic term for rent-seeking (kiray sebsabi), which is directly translated to mean someone who wants to earn or collect rent. This could wrongfully imply to include those who rightfully collect their due rents on their hard earned properties.

Rent-seeking is not corruption either; it is not one and the same with good governance, Costentinos argues. He further elucidates that what good governance is not necessarily due to rent-seekers. As far as he is concerned, good governance to the larger extent is about governance capacity; “And this could include the capacity to keep rent-seekers at bay and make sure that socially wasteful economic activities would reap undue benefit”.

According to a recent report by ten parliamentary group which were dispatched to supervise executive branches and their response to the country-wide good governance movement, the issue of governance as observed in number agencies is about capacity of executing bodies, the system they employ and the mentality. And, the mentality refers to the rent-seeking attitude espoused by government officials, the report detailed.

Habtamu goes even further and argues that lack of clear understanding of the rent-seeking concept curtailed the effort to suppress it. For one, he says that although the greater mass assumes that, from the political rhetoric, rent-seeking is bad in the same sense it misconceives the concept to be applying to officeholders and not a societal issue. The finding of his research, actually suggest that rent-seeking in various forms has been the part and parcel of the Ethiopia value system and culture for many years. Many activities, he argues, which are seemingly free from rent-seeking could be see exhibiting syndrome if closely examined. One is the agricultural sector. Even in smallholder agriculture like Ethiopia’s where there could be less incentive to seek rent in an organized manner, rent-seeking could take other forms and is still observable.

“One may study the extent of this dangerous trend from student behavior during their stays within their campuses where a good number of them may seek unjust and, even illegal benefits, grades, for instance, which they do not deserve,” Habtamu told The Reporter in an email interview. This is now a practical rent-seeking activity that a researcher could easily identify as a dominant value system, across the board, widely affecting the Ethiopian generation as a people, according to him. “One may also study the trends among future government functionaries as to what they really think when they come into office. Do they seek the power to earn bread for themselves or become causes for the wide mass to effectively win life? One may, without research, see that many of us do not decline accepting excessive benefits without an equal amount of contributions or costs,” he argued.

It goes without saying that, given the sociological nature of rent-seeking to the Ethiopian society or to any society where social capital accumulation is still infant, the role of development agents (individuals and groups that populated the developmental state) becomes too great. In the arguments of Meles, the African state needs to be strong enough to successfully stamp out rent-seeking and save itself from turning into a predatory state. For one, Meles says who populate the government is quite important.

As far Ethiopia is concerned, the incumbent government declared that the developmental state approach is the final answer to this problem. Meles, above all else, emphasizes on rent-collection in its patronage style, as the most visible pressing national danger in Ethiopia. “He prescribes political, social and moral sanctions against both its value and practice,” Habtamu said.

Meles also underlined public trust as the most effective deterrent counter pressure against rent-seeking and rent-collection that would be guaranteed through consistent and broad-based development. For him, the whole scale alleviation of social malaises would convince the masses to stand against rent-seeking and collection. Here is the tricky part. For development to happen rent-seekers should be kept from affecting the national wealth distribution in any meaningful way. But, without that, the state itself would be the one impeding the progress, Meles noted. And by the admission of the state government itself the rent-seeking political economy is expanding once more. Almost all officials admit to the fact that currently development forces are going toe-to-toe with rent-seekers, both in the party hierarchy and the government while the latter being responsible for creating overnight millionaires who did not win the lottery.

An important question to ask is how things got to this point. There appears to be two options: one the developmental government has not succeeded in rallying its politicians and individuals in the public offices behind the development agenda; at least not fully; while the other is along the way the developmental movement has been hijacked somehow. The first one would entail limited success in making the development project hegemonic even among the ranks of the EPRDF political cadres officeholders.

In his article entitled “The Theory and Practice of Meles Zenawi” published 2012, Alex de Waal wrote that it was Meles’s belief that it would be decade before one can truly say the developmental project is hegemonic in Ethiopia.

For Habtamu, the developmental state dynamism has to be checked continuously to see that it is in line. According him, current signs of drought and food shortage, mass migration and visible deficit in the project execution across the nation are telling as to there are issue in the state apparatus.

If the agitation of all the government branches, scholars and public is to mean something, the party and government officials are due for another self evaluation. After all, a developmental state that has massive room to create rent and direct the rent to any party that it deemed worthy has no body but itself to balm for any misgivings. Certainly, it is in the state’s prerogative to eliminate rent-seekers; the only thing it has to do is divert the rent elsewhere. Preferably, to more productive economic agents.