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Who will trust government again?

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Who will trust government again?

The low trust has much to do with the weak institutions that tolerate leaders who tell lies, steal public money, or use their offices to expropriate people’s property!

Why Nations fail

Why Nations fail: Authors, Daron Acemoglu (L) and James Robinson

The International Labour Day celebrations did not meet the expectations of Ugandan workers. In particular, medical workers who endured a very bad first day of May 2018.

“I wanted to bring Cuban doctors because our own doctors behaved very badly and unprofessionally. (…) some of our own doctors are selfish with crooked behaviour.

Those were the words of President Yoweri Museveni, directed towards medical doctors who, among other public workers, have for some time now been demanding for enhancement of their salaries and other perks.

“I have authority although I have a low pay. I am the President of Uganda. So, don’t bring those nonsensical arguments [of salary enhancement],” the President continued.

Until the depressing Labour Day message from the President, doctors and other public workers were optimistic that their welfare was going to improve.

Doctors lost hope

In March this year, government announced that salary enhancement demands for selected public workers had been approved by cabinet. In particular, government had promised to raise salaries of doctors and other scientists, judicial officers, science teachers and low ranking police and prisons officers.

All this hope vanished when the head of state lambasted doctors for being “enemies of Uganda who should be treated as such.” The President used very strong words on a day when all workers were eager to hear from him. They had heard from his lieutenants in government but they couldn’t trust their word.

Recently I travelled with Dr. Ekwaro Obuku, the President of the Uganda Medical Association. “Ramathan, do you think the President will sanction our (doctors) pay raise?” he asked.

“Why not? The fact that cabinet approved your demands, and he is its chairman; why would you have doubts?” I responded.

Now I know why. In most countries around the world, citizens do not trust politicians. Now I know why in Uganda mistrust of politicians is the norm. The Global Competitiveness Report shows that public trust in Ugandan politicians is low, ranking 96th in the world out of 137 countries.

Why interest rates are high

Trust can be defined as the belief or perception by one party (e.g. doctors) that the other party (e.g. government) to a particular transaction will not cheat.

When trust is high, contracts (whether formal or informal) can be enforced without costly monitoring and investigation of performance by the contractual parties.

It appears to me that our ethical or moral codes that impose “internal sanctions,” such as guilt, on cheaters are weak. Otherwise why would a President renege on his own government’s promise?

The low trust among Ugandans manifest in many ways. First, goods and services in Uganda can rarely be provided in exchange for a promise of a future payment; sellers demand for cash.

Second, creditors are willing to loan money only to debtors who possess collateral and they charge very high interest rates. Reason? They know that if you lend ten Ugandans, on average six will repay and the rest will default. The six should thus pay on behalf of the four that are likely to default.

Lands Minister belongs to jail

Third, investors do not trust government and Ugandan partners that they will not expropriate their businesses and/or assets. Thus Uganda mainly attracts ‘bad’ investors, a tendency economists refer to as adverse selection. To attract ‘good’ investors Uganda must promise and offer very generous incentives ranging from free land, very long tax holidays, police escorts, and the possibility for the investors to be above the law.

Fourth, savers do not trust banks that their money will be safe; so people tend to keep their money as demand deposits such that they can withdraw it at the earliest signal of bank distress.

It is Douglass North who argued that “the inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World.”  Uganda is a perfect laboratory to test this hypothesis.

Fifth, the honesty and efficiency of government officials greatly affect the people’s trust in the government. If government leaders, judges and bureaucrats are corrupt, market participants can more easily justify and rationalise their own dishonest behaviour.

The other day I saw a Minister on TV appearing before the Bamugereirwe land commission and understood why Ugandans do not trust their government. I saw a lady who is a liar and I think unfit to be a Minister. She belongs to jail, not cabinet chambers.

Survey of wallets

Mr. President, you are presiding over a system that cannot be trusted. But I think societies get the leaders they deserve. Admittedly, as a low income country, we are not so different from other poor countries.

In 1996, World Bank economists Steve Knack and Phil Keefer carried out a survey examining the effect of trust on economic growth. They found that low-income societies have less trust than rich societies, and that societies with less trust have less growth.

In this survey, Knack and Keefer randomly dropped wallets containing money on streets in different cities around the world. They dropped 100 wallets in each city, and counted how many were returned with the money intact.

In rich Copenhagen Denmark, where trust is so high that mothers leave their babies unattended to on the street while shopping, 98 of the 100 wallets were returned with the money intact. Only two wallets were stolen, perhaps by Ugandans ‘sweeping’ there.

In Philippines’ capital Manila, a city typical of a poor society, only 5 of the 100 wallets were returned and even those wallets that were returned, the money had been taken (stolen).

Why nations fail

It’s quite unfortunate that Kampala was not one of the sample cities that were involved in this survey. It does not require a genius to guess how many wallets would be returned in a city where they do not wait for you to drop the wallet; they pick it from you by force.

This low trust has much to do with the weak institutions that tolerate leaders who tell lies, steal public money, or use their offices to expropriate people’s property.

Last weekend we had a debate about a 2012 book entitled, “Why Nations Fail”. The authors, who also are well-decorated researchers (Daron Acemoglu and James Robinson), set out to explain one of the unsettled debates among economists – if the earth was created on the same day, and with all humans equal, why are some countries stupendously rich and others such as Uganda horrendously poor?

That book should be read by anyone who wants to go to heaven. The authors found, through rigorous research, that poor countries, everywhere, were under “extractive” political institutions (systems that place power in the hands of a few, and result in extractive economic institutions, unfair regulations and high barriers to doing business).

Mistrust begets mistrust

Like I have written in these pages before, Uganda has chosen the route of extractive institutions. Most of those that get the privilege to serve people use their positions to transfer public wealth into their own.

I know, Mr. President, you may not exactly understand this, but you the leaders are not the problem; rules and their enforcers are. Successful countries became rich because they don’t allow strong men and women to flourish.

Finally, Mr. President, indecision and entropy at macro level beget entropy at micro levels. When you renege on your ownpromise to pay doctors, your government loses moral authority to regulate private firms that exploit their employees.

When you fail to sack a Minister who used her position to expropriate people’s assets such as land, small organisations will not stop asset stripping.

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Ramathan Ggoobi

Ramathan Ggoobi is Policy Analyst, and Researcher. He lecturers economics at Makerere University Business School (MUBS) and has co-authored several studies on Uganda's economy. For the past ten years, he has published a weekly column 'Are You Listening Mr. President' in The Sunrise Newspaper, Uganda's Leading Weekly

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