Rising youth unemployment including university graduates and the associated poverty and hunger are approaching dangerous and potentially explosive proportions. It is now clear that market forces and the invisible hand that have guided Uganda’s economy since 1987 are unable to generate enough jobs.
The Great Depression of the 1930s which was marked by massive unemployment, poverty and food insecurity contributed to the Second World War with deadly human consequences. John Maynard Keynes, the British economist, realized that in times of economic distress fiscal policy – government increased spending – should be used as a tool to manage the economy.
Until the Great Depression, the assumption had been that the economy was self-regulated and the invisible hand of the market forces left to its own devices would automatically raise economic output and employment to optimal levels. Keynes who disagreed with this approach argued that during times of economic distress, the drop in aggregate demand for goods and services could cause further economic contraction and raise unemployment which the invisible hand could not handle. He suggested that it was government responsibility to kick-start the economy by borrowing and spending on public infrastructure projects – roads, schools, hospitals etc – so that the funds spent would raise economic growth, create jobs and reduce unemployment.
Between the end of WWII and 1975, governments around the world followed Keynes advice, increased the level of public spending and achieved strong economic growth with inflation and unemployment levels relatively low.
The peculiar developments of the 1970s marked by stagflation – stagnant economies with rising inflation and unemployment – were blamed on the Keynesian economic policies by monetarists. Whereas Keynes focused more on unemployment (and state intervention to address it) than inflation, the monetarists argued that people should be left alone with the government’s main role to control the amount of money in circulation – hence inflation control – trusting that economic growth, productivity and unemployment would take care of themselves.
Western conservative governments that came to power in early 1980s followed monetary policy advice that emphasized market liberalization, inflation control and allowed companies freedom to borrow, hire and fire workers at will and minimized state intervention in the economy. These policies are believed to have triggered the economic recession in the early 1980s. Because it proved difficult to find an appropriate measure of money growth in the economy – the principal pillar in the Washington Consensus – controlling the amount of money in circulation was abandoned in most countries.
Following the economic recession that began in 2008, Keynes economics of aggregate demand management to check unemployment has returned. Governments around the world are increasing public spending to stimulate economic growth and reduce unemployment. There is also evidence that state intervention in Asian economies has contributed to economic growth and transformation. In South Korea President Park intervened in the economy including state-directed lending, subsidies and selective tariffs on imports to encourage companies participate in export-oriented manufacturing activities. However, the companies were subjected to rigorous competition and inspection and those that could not make it fell by the wayside.
With the launch of the national development plan in the last quarter of 2009 – and the formal abandonment of the Washington Consensus – the Uganda government has yet to put in place public works programs in infrastructure and institutions to reinvigorate the economy, create jobs and reduce unemployment.
Representatives of donor countries and financial institutions, experts and ministers that are flying into Uganda to shower praise on the government for maintaining stability and high per capita GDP without stressing high levels of corruption, sectarianism, unemployment and under-employment, spreading and deepening hunger especially among mothers and children, the diseases of poverty and environmental degradation are not being helpful. They give the impression that the status quo should be maintained.
The increasing level of crime, open and disguised sex workers, school drop out, domestic violence and demonstrations is a signal that not all is well. Building more prisons, boosting the police force and the judiciary and blaming the victims for laziness and drunkenness will not solve what is essentially an economic problem that cannot be addressed by market forces alone.
In the interest of peace, security and political stability, the Uganda government and development partners need to focus more on creating jobs to absorb the unemployed youth that are becoming restive than congratulate themselves for achieving macroeconomic stability.