The Political Economy of Tanzania: Decline and Recovery

2. Economic Decline and Authoritarian Rule

C h a p t e r 2 Economic Decline and Authoritarian Rule The economic trajectory of post-independence Tanzania is painfully familiar. A poor choice of economic policies led to economic decline, which manifested itself in growing and acute scarcities of essential goods and services. Pervasive scarcities, in turn, gave rise to the rapid spread of parallel markets, which gradually came to provide a larger and larger proportion of what ordinary Tanzanians consumed on a day-to-day basis. Tanzania developed a binary economic system. The official economy, which was largely state regulated and controlled, delivered fewer and fewer of the goods Tanzanians needed and consumed on a daily basis. The unofficial or parallel economy grew exponentially and provided an increasing proportion. The combination of the two provided fertile opportunity for rent-seeking public officials and politicians.1 Public sector corruption became blatant, universal, and ineradicable. Using the gains they derived from corruption, many public officials became active in the parallel sector as investors and producers, owning, or co-owning, private enterprises that provided goods and services that the legal marketplace could not. Tanzania’s evolving economic framework never corresponded very closely to President Nyerere’s social vision, and the gap between the two only grew greater as the government implemented a policy of protected industrialization . Even the most casual reading of Nyerere’s ideas on development suggests that his personal priority had to do with improving the conditions of life for Tanzania’s poorest social strata. During Nyerere’s presidency as now, this consisted principally of smallholder farmers, who were the overwhelming majority of the Tanzanian population.2 As it evolved during the twentyfive years of the Nyerere presidency, however, Tanzanian economic policy 28 Chapter 2 assigned the highest priority to the creation of large-scale, state-owned industries . These were overwhelmingly urban, and they provided their greatest rewards to the white-collar stratum of managers and technocrats and to the owners of small businesses that provided collateral services, such as transportation and catering. The new industries also offered generous benefits to their industrial workers since, according to economic theory, the industrial wage had to be set at a high enough level to induce farmers to migrate to the industrial sector. To capitalize those industries and to provide them with a steady flow of machinery, raw materials, and other inputs, the Tanzanian government imposed higher and higher levels of taxation and price regimentation in the agricultural sector. Throughout the Nyerere presidency, Tanzania’s rural sector was not treated as the chosen recipient of beneficent transfers from better off segments of the society but, rather, as a source of revenue that could provide capital for the industrial sector. Contrary to much of what Nyerere said and continued to believe, the economic framework that Tanzania implemented during his presidency was perverse with respect to the distribution of wealth. It featured a planned transfer of economic resources away from the poorer elements of the society, the small farmers, to the far better off inhabitants of a new industrial sector, its workers, managers, and civil servants. If Tanzania has attracted global attention because of the social ideals of its founder-president, it has attracted equal attention for having had one of subSaharan Africa’s worst performing economies during the decades following independence. During the period between independence in 1961 and the beginning of economic reforms in the mid-1980s, Tanzania’s economic record was one of persistent decline. According to World Bank figures, Tanzania’s real per capita income stagnated during the forty-year period from 1960 to the turn of this century and actually fell during the 1970s and 1980s.3 Even these dismal numbers do not provide a complete picture, however. Much of the recorded growth took place in the expanding public sector and reflected the massive growth of the central government’s bureaucracy. Most Tanzanians did not benefit from this growth, and many believed that their real standard of living—measured on what they could actually obtain in the way of housing, food, clothing, and other vital amenities—fell during most of that period. The government based its calculations on the official exchange rate, which exaggerated the dollar value of its shilling-based economy. This practice concealed the extent to which living standards had fallen for the ordinary person. By the early 1970s, it had become painfully apparent that Tanzania was Economic Decline and Authoritarian Rule 29...