"I should also add that it is not easy for economies to escape the informality trap and that this is not a Ruto problem: the informal labor share has barely changed over the last two decades. The best way out seems to be assiduous regulatory enforcement regardless of firm size. However, this comes with economic and political costs. Only a foolish politician/policymaker would go about killing jobs, jeopardizing a decent growth rate, and angering potential voters in the midst of a slow-burning fiscal crisis."
How about the opposite approach, of aggressive deregulation so formal firms don't face a disadvantage? In a situation of limited state capacity, deregulation would appear easier than regulation. Deregulation also seems easier to implement without introducing corruption (the "Cronyism and variable policy enforcement" you allude to).
Has the deregulatory approach been tried? How has it gone in the past?
I wouldn't consider myself a libertarian in general. But it seems to me that perhaps instead of thinking of oneself as a binary "libertarian" or "not libertarian", one should instead decide to be libertarian, or not, on a per-country basis, considering the track record of the state in that particular country. Perhaps this is what Tyler Cowen alludes to with the term "state capacity libertarianism".
Argentina is an interesting case study in this regard, since their government is quite incompetent and they recently elected a libertarian. Arguably there's no other country in the world where libertarianism has more promise.
I would be very interested to see what happens if something like Milei's movement gained significant popularity in an African country. Checking to see if the government is shrinking as intended should be relatively easy for voters to evaluate, compared with more sophisticated policy goals that could be harder to hit. Or at the very least, I would be interested to see an African politician who explicitly aims for a "less ambitious" state that tries hard to do "just a few things very well". Concentrating voter oversight on a smaller surface area could lead to less corruption?
A hypothesis here is that development is, itself, a precondition for the level of state capacity that allows a state to succeed at more ambitious tasks (e.g. more development -> better education -> savvier voters and politicians -> a more effective state). So libertarianism during the development stage doesn't have to mean libertarianism forever.
But “deregulation” doesn’t mean much in the Kenyan context. Often regulations & laws aren’t enforced. You need a minimum level of regulatory and law enforcement to reap the dividends of libertarianism. Markets need structure.
So we can’t just set about replicating Milei across Africa. The problems aren’t the same. What’s the state does or can do is very different. And it would be disastrous politics.
As usual, very helpful analysis. Thank you. I'm curious which data the estimates for household income and consumption are based on. I thought the latest survey data available are from the 2022 KCHS, which showed real consumption for households was down more than 30% since 2015, poverty up 10%, and many of the largest hits in consumption coming from the better off quintiles. More recent surveys without a full income/consumption module (like FinAccess 2024) don't show dramatic improvements in living conditions. If your estimates are based on aggregate consumer spending, it may be that the economic experience of the median household is quite different (I'd guess worse), which would have important political implications.
Hi professor, thank you for this piece. I’m curious, with FDI numbers going down, key commodity products losing value in real trade terms and a growing reliance on international capital markets to finance infrastructure and government expenditure. Is it not possible to make the suggestion the ambition of the elites is weighed down by a crowding out of investments and a lack of access to credit? The Kenyan central bank is over leveraged in its day to day and medium term operations and the fiscal budget is being used to finance interest payments more so than new investments. I agree the elites need to play a bigger role but the current monetary regime makes it almost impossible to do so. Thank you for this informative piece
"I should also add that it is not easy for economies to escape the informality trap and that this is not a Ruto problem: the informal labor share has barely changed over the last two decades. The best way out seems to be assiduous regulatory enforcement regardless of firm size. However, this comes with economic and political costs. Only a foolish politician/policymaker would go about killing jobs, jeopardizing a decent growth rate, and angering potential voters in the midst of a slow-burning fiscal crisis."
How about the opposite approach, of aggressive deregulation so formal firms don't face a disadvantage? In a situation of limited state capacity, deregulation would appear easier than regulation. Deregulation also seems easier to implement without introducing corruption (the "Cronyism and variable policy enforcement" you allude to).
Has the deregulatory approach been tried? How has it gone in the past?
I wouldn't consider myself a libertarian in general. But it seems to me that perhaps instead of thinking of oneself as a binary "libertarian" or "not libertarian", one should instead decide to be libertarian, or not, on a per-country basis, considering the track record of the state in that particular country. Perhaps this is what Tyler Cowen alludes to with the term "state capacity libertarianism".
Argentina is an interesting case study in this regard, since their government is quite incompetent and they recently elected a libertarian. Arguably there's no other country in the world where libertarianism has more promise.
I would be very interested to see what happens if something like Milei's movement gained significant popularity in an African country. Checking to see if the government is shrinking as intended should be relatively easy for voters to evaluate, compared with more sophisticated policy goals that could be harder to hit. Or at the very least, I would be interested to see an African politician who explicitly aims for a "less ambitious" state that tries hard to do "just a few things very well". Concentrating voter oversight on a smaller surface area could lead to less corruption?
A hypothesis here is that development is, itself, a precondition for the level of state capacity that allows a state to succeed at more ambitious tasks (e.g. more development -> better education -> savvier voters and politicians -> a more effective state). So libertarianism during the development stage doesn't have to mean libertarianism forever.
I get where you are coming from.
But “deregulation” doesn’t mean much in the Kenyan context. Often regulations & laws aren’t enforced. You need a minimum level of regulatory and law enforcement to reap the dividends of libertarianism. Markets need structure.
So we can’t just set about replicating Milei across Africa. The problems aren’t the same. What’s the state does or can do is very different. And it would be disastrous politics.
As usual, very helpful analysis. Thank you. I'm curious which data the estimates for household income and consumption are based on. I thought the latest survey data available are from the 2022 KCHS, which showed real consumption for households was down more than 30% since 2015, poverty up 10%, and many of the largest hits in consumption coming from the better off quintiles. More recent surveys without a full income/consumption module (like FinAccess 2024) don't show dramatic improvements in living conditions. If your estimates are based on aggregate consumer spending, it may be that the economic experience of the median household is quite different (I'd guess worse), which would have important political implications.
Insightful read. The misalignment between policy direction and development needs is also keeping many in South Africa trapped in poverty.
Hi professor, thank you for this piece. I’m curious, with FDI numbers going down, key commodity products losing value in real trade terms and a growing reliance on international capital markets to finance infrastructure and government expenditure. Is it not possible to make the suggestion the ambition of the elites is weighed down by a crowding out of investments and a lack of access to credit? The Kenyan central bank is over leveraged in its day to day and medium term operations and the fiscal budget is being used to finance interest payments more so than new investments. I agree the elites need to play a bigger role but the current monetary regime makes it almost impossible to do so. Thank you for this informative piece