DC Summit. Part IV. Trickle-down economics

U.S.-Africa Leaders Summit: Open Markets - Enhancing the Africa of Tomorrow. Aug. 4, 2014

This content of this blog breaks down into four parts:

  1. Trickle-down economics and the middle class
  2. The “Open Markets” Panel
  3. African Telecommunications
  4. Africa and the Internet

Agreements and disagreements emerged between the Summit’s host (President Obama) and guests (African participants) about trickle-down economics and the middle class.

1. Trickle-down economics

This is a critical point of disagreement. On one hand, on the “Open Markets” panel James Mwangi, president of Equity Bank declared:

« … Financial access [to digital communications services] for the low-income is essential to integrate them in economic transformation. If they are excluded, the economic gains don’t trickle down to that segment of the population. »

James Mwangi, Equity Bank Group
James Mwangi, Equity Bank Group, Nairobi

Mr. Mwangi has certainly good intentions. However, modern communications services are vital to all segments of society, from the wealthiest to the poorest. Next, he contends that if the poor have access, then “the economic gains” made by the rich, will drip down to them. This is a summary and mechanical transplantation trickle-down economics or theory to African development. But it sees only advantages and fails to acknowledge the negative aspects —or even dire consequences— of trickle-down economics.

Wikipedia’s defines trickle-down economics as a United States politics idea “that tax breaks or other economic benefits provided to businesses and upper income levels will benefit poorer members of society by improving the economy as a whole.

We learn that it was humorist Will Rogers coined the expression during the Great Depression (1930 to mid-1940) when he declared:

“Money was all appropriated for the top in hopes that it would trickle down to the needy.”

In reality, though, “millions lived in poverty” and President Franklin Roosevelt had to fight “for Social Security, and insurance for the unemployed, and a minimum wage.” His policies attenuated the impact of the Depression that ruined thousands.

John Steinbeck’s The Grapes of Wrath and the eponym movie featuring Henry Fonda, have captured the hardship that befell rural families entrapped in the Dust Bowl.

The Grapes of Wrath 1940

In the 1980s, conservative radio broadcaster Paul Harvey applied the Reaganomics label to “the economic policies promoted by U.S. President Ronald Reagan during the 1980s and still widely practiced. These policies are commonly associated with supply-side economics, referred to as trickle-down economics by political opponents and free market economics by political advocates.”

In the 21st century, the Occupy movement is an international protest movement against social and economic inequality, its primary goal being to make the economic and political relations in all societies less vertically hierarchical and more flatly distributed.

The movement staged marches around the USA. It condemned the control of the world economy by “large corporations and the global financial system … in a way that disproportionately benefits a minority, undermines democracy, and is unstable.”

Last but most importantly, in a major speech titled Economic Mobility

President Barack Obama observes that:

« But starting in the late ‘70s, [the] social compact began to unravel. … As a trickle-down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither. … When the music stopped, and the crisis hit, millions of families were stripped of whatever cushion they had left. »

Even more compelling arguments and irrefutable facts are laid out in  French economist Thomas Picketty’s important book: Capital in the Twenty-First Century (Harvard University Press, 2014). He argues convincingly, in my opinion, that trickle-down economics, the middle class fate, etc. all have to do with the issue of distribution of wealth in society. On page 70 he writes:

« The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms. In particular, the reduction of inequality that took place in most developed countries between 1910 and 1950 was above all a consequence of war and of policies adopted to cope with the shocks of war. Similarly, the resurgence of inequality after 1980 is due largely to the political shifts of the past several decades, especially in regard to taxation and finance. »

On page 111 he insists:

« The history of income and wealth is always deeply political, chaotic, and unpredictable. How this history plays out depends on how societies view inequalities and what kinds of policies and institutions they adopt to measure and transform them.  »

Read Gillian Tett’s review of the book in his article “Anxiety In The Age Of Inequality”

The above references clearly suggest that the stewards of Africa’s economy, such Equity Bank’s president, should apply critical thinking to their development policies and projects. And the bottom line, here, is that trickle-down economics has not benefited America.

It is more disastrous for Africa. And it is bound to worsen the continent’s domestic issues and international standing.

Watch the Open Markets panel video

Read the articles “Africa On The Rise” and “Africa Emerges—but from what and into what?

2. The Middle Class

In the closing session of the US-Africa Summit, August 6, President Obama declared that: “Africa has one of this fastest growing middle class in the world.”

First, throughout his first term in office, Mr. Obama’s friendliest critics and political allies —from the Left and the Center of the political spectrum— lamented his consistent emphasis on the middle class. They were alarmed by what they described as the President’s omission —or neglect— of the poor. Since last year though, they admit that the White House has brought the plight of America’s downtrodden more into focus.

Read Julianne Malvaux’ article: “Obama. Fighting Poverty On Two Fronts

In the same “Economic Mobility” speech Obama argues that:

« The decades-long shifts in the economy have hurt all groups: poor and middle class; inner city and rural folks; men and women; and Americans of all races. And as a consequence, some of the social patterns that contribute to declining mobility that were once attributed to the urban poor — that’s a particular problem for the inner city: single-parent households or drug abuse — it turns out now we’re seeing that pop up everywhere. »

And he underscores that:

« The opportunity gap in America is now as much about class as it is about race, and that gap is growing. So if we’re going to take on growing inequality and try to improve upward mobility for all people, we’ve got to move beyond the false notion that this is an issue exclusively of minority concern. And we have to reject a politics that suggests any effort to address it in a meaningful way somehow pits the interests of a deserving middle class against those of an undeserving poor in search of handouts. »

The problem, however, is that the sociological strata typical of industrial countries do not exist in Africa. There —and despite claims to the contrary—, the middle class is so weak as to be non-existent. More than half a century after the Independence series of the 1960s,  Africa remains socioeconomically flatter than the other continents. Also, it is the least manufacturing and consumer region of the world. However, despite a widening gap between rich and poor, Africa is still heavily dependent on foreign hegemony: from old (i.e. Europe and America that, first enslaved it, and then colonized it) to new one, e.g. China. The latter can be no more benevolent and less selfish than the former. Having been unable or unwilling to assert a leadership conducive to consensus around common goals, the African middle class is more talk than reality.

As I reported in Part II (Democracy and Literacy) of this blog series, Frantz Fanon had foreseen the predicaments of the middle class aka petite bourgeoisie in Africa. Formulated half a century ago, his analysis still applies and rings truer than ever before.

Read the chapter “The Pitfalls of National Consciousness” in The Wretched Of The Earth.

Since becoming “independent” each African country has locked itself in a two-tiered layering in which the Westernized “elite” (i.e. the petite bourgeoisie decried by Fanon) holds the levers of political and economic power. It acts as the middle class. But, so far, its warped statesmanship has led the continent to a dead-end. An artificial appendage to an out-centered and extractive economy, it has neither roots—especially cultural—, nor roof.

And today, the issues of African development boil down to a persistent dilemma or a dual option:

  • Option 1. Adopt a trickle-down economics strategy that favors the “middle class” or petite bourgeoisie and that has not succeeded in improving the living conditions of the populations?
  • Option 2. Focus on the needs of the majority of the populations and be their humble servants, not their hurtful masters.

Top-down? Or Bottom-up?

That’s the question facing Africa.

To be continued. Next The “Open Markets” Panel

Tierno S. Bah

Author: Tierno Siradiou Bah

Founder and publisher of webAfriqa, the African content portal, comprising: webAFriqa.net, webFuuta.net, webPulaaku,net, webMande.net, webCote.net, webForet.net, webGuinee.net, WikiGuinee.net, Campboiro.org, AfriXML.net, and webAmeriqa.com.