A Money-Order Economy
I was reading an article in the Economist magazine about the state of Kerala in India. Now, Kerala, has often been described as a model state in India because unlike other parts of that country, Kerala has a very high literacy rate, it’s residents live as long as those in more developed countries and the state government has managed to provide good social services over the years.
However, some are now beginning to argue that the Kerala economic model may not be sustainable over the long run because the state’s main source of income is derived from remittances sent in from “Keralites” who mainly work in the oil rich gulf states. In fact, the Economist article above states that– “Kerala’s per capita output is one of the lowest in India, but its per capita expenditure is one of the highest”. This of course means that the people in Kerala have become too dependent on those remittances (which would explain their high capital expenditure rates), but this dependency has created a negative phenomenon in that the state is now one of the lowest producing places in India (which explains why it has one of the lowest per capita outputs in the country).
The people in Kerala are not like the people in Bangalore (a high out-put producing location) —a place where many technology companies were founded and where many of India’s young IT brains are now located. It has become, in the words of an Indian quoted in the above article, a state where. “… one poor fellow works three shifts in Dubai, saving every penny to send home, where there will be eight guys reading two newspapers a day and discussing politics”. This dependence on remittances is now becoming dangerous for Kerala because as the global economy begins to slow down and as many of their migrant workers start getting laid off, those remittances are going to drop. Once these remittances drop, many are predicting that it will impact this particular state quite drastically in a way that other states in India (that are producing goods) may not be impacted.
As I was reading this article, I obviously thought about Kenya and it’s increasing dependence on remittances, especially in this time of a global downward trend. However, I also thought about a phenomenon that I have mentioned here before, which is similar to what appears to be happening in Kerala — and that phenomenon involves states or countries whose levels of production are below par.
So, then, I asked myself the following question: Is Kenya in danger of becoming a worse version of Kerala? (& I say worse here because the government in Kenya is not really providing social services like the state government in Kerala).
Is Kenya (unless it starts producing) going to become a money-order (aka — a western union money transfer) economy?
In conclusion, I will say the following: There’s only one model that works and will work throughout the world for all times to come: The model that attracts and retains people to work and settle down in a particular place.
If people are leaving a place for opportunities elsewhere, the place has a failed model. If people from outside don’t want to come and settle down, it’s also a failed model.
Graduate students from the west are now beginning to ask for internships in India and china because that model is working and everyone can see where the growth in the global economy is going to come from –it’s moving from the west to the east and people are moving with it.
The government could start offering corruption seminars to other developing nations. That might bring in some cash. Except it would promptly disappear into their pockets again.
The fact is, the Kenyan system is – for those at the top – not a democracy, but a kleptocracy. The institutions of the state are simply too corrupt to allow for any meaningful action or investment at the bottom of the pyramid. And the state apparatus has become too unwieldy and expensive to function effectively.
To make things worse, we have a huge underclass of people who have been deprived of opportunities for education and training. This breeds poverty, and also a dependence on remittances from richer relatives overseas.
Sadly, I don’t think there’s any remedy until we sort out corruption, and then the education system. And that’s not going to happen while those pigs we elected are still at the trough.
Ke,
Nice post… I like the fact that you brought up India as a study case .. I personally feel Kenyans have a lot to learn from India …. In terms of dealing with situations where we have a big human resource which is largely sitting idle.. given the Kenyan unemployment rate being so high..
I think i have said before in one of my replies and am sure everybody knows this… Kenya does not have natural resources like oil, gas, diamond etc whose income could largely cater for many social services that are poorly provided or not provided at all… The idea of me saying this is that Kenya needs a source of hard currency that could be taxed to be able to provide government money for infrastructure, health etc….
One advantage that Kerala has is its culture… In terms of education. Compared to other states in India… Many nurses and doctors come from this state.. Many engineers too come from this state… I think you have failed to mention that Kerala residents have played a big role in the IT industry even in Bangalore…. In terms of IT professionals……
Personally i don’t think the IT industry is a good benchmark to use in gauging sustainability in an economy in the long run…. Because you also have to ask yourself questions like how big the unemployment is in Bangalore to be able to come to a good conclusion of what model is better… In the long run… and also for the economy you need to ask yourself how much taxes does the Bangalore get from these IT activities and how much of these the money earned is earned by the Bangalore residents exclusively…
Having said that for economies that Kerala model has to be questioned along the same lines…. How much taxes does the government get from the remittances and how much of these remittances actually go to creating jobs or production geared activities…. because production does not necessarily have to be in the IT sector …. It could be in Textile Industry or any other economic activity with good returns…
At the end of the day… I think I come to a conclusion that .. It depends on how the money goes in helping reducing unemployment and helping the people of the State become uniquely positioned to tackle the social problems which face them the next day or the next year…
Another thing to note… Is Kerala has a the lowest corruption index compare to all the other states…. So care has to be taken in comparing it with Kenya because we all know that there is there is a big hole in Kenya Revenue purse…
Also the competitive nature of education in Kerala in nowhere near what Kenya has…
KE
This is one of the best posts you have ever put out there.
My contribution will be short and to the point.
Kenya needs to wake up, clean up its act and diversify.
Acheni upuuzi.
1) Banagalore is a city not a state (& not a city-state) BUT I betcha it+its suburbs has a larger productive economy than the entire of Kenya!
2) Reminds me of the coast (sitting around drinking coffee, reading the paper & gabbing all day)
3) Kenya does suffer from the affliction esp when relatives send money to their dependents. Generally urban-rural.
4) I have stated that over-population (or overly large families) are a problem that does not allow for decent education or encourages malnutition.
5) Over-population also denies Capital Accumulation which is how countries like the USA, Japan & even Singapore grew. Of course, coupled with good governance that allowed for the Capital Accumulation.
6) I still think remittances will help Kenya. It is a source of ’spending’ money as well as investment. Of course, I support the latter but I will take the former as well.
Kenya needs to expand REGIONAL TRADE. Kenya has better industries than our neighbours (& which irks the Tanzanians)… and we need to open up the borders & improve infrastructure… this will send goods all the way to S. Sudan & DRC
Riaga:
Yes, you are right. Production doesn’t have to come from just IT. I used IT as an example because that has spurred economic growth in India, but it could be anything including manufacturing textiles and other products.
Coldtusker:
— but you see? my readers act as editors and since it’s a blog, I can quickly go back and correct my errors. I write my posts late at night and sometimes, I’m just too tired to go back and edit.
Yes – Bangalore is a city and I realized that as I was writing this, but got tired and didn’t bother changing it. It’s in the state of Karnataka. I’m complaining about reporters in Kenya being lazy
You keep talking about over population and I have located a video where Museveni talks about this and argues that Africa’s problem is not over population and he in fact uses the example of India — India can fit into the continent of Africa 11 times (he says) — India has a “problem” of overpopulation, but they are solving it with their higher levels of productivity. Africa does not have a problem of over population. He says the problem is under production. I will post that video here for all to view.
You keep mentioning regional trade with other AFrican countries, but how effective can that be if the buying power in those countries is very low? Don’t you at some point have to export to countries with populations that have a growing middle class with higher buying power?
Maybe we are being too negative about the kenyan economy because someone told me yesterday that she knows quite a few people who are buying range rovers off the lot and paying cash.
Coldtusker,
Im having a problem understanding what you mean by overpopulation…. Kenya is not overpopulated…
Having a large population means a big human resource… A big human resource is a good thing because the country has large amounts of workers who are ready and willing to work…. So I don’t agree with your assertion that overpopulation denies capital accumulation…
Big campanies like places with big population and stable goverments….. why ?
Because it reduces the overrall labour costs….
See you first have to understand capital accumulation only comes when after having a conducive AND friendly business atmosphere… which encourages a free people to to innovate and build better equipment etc…
Cold tusker you seem to putting the cart before the horse … Big population is a good thing…. I think the question should be , what work do they do to earn a living and not overpopulation being a problem ….
KE & Riaga:
Let’s discuss over-population…
Only 10% of Kenya’s land is arable…
Central – definitely… Kenya’s best land. Great for intensive farming.
RV – Kenya’s breadbasket but not suitable for intensive (2-3 crops or seasons) farming. BTW, RV is huge so the above is not a blanket statement.
Nyanza – Some good land but… without using the waters supplying L. Victoria… not great! Of course, parts of Kisii are very fertile.
Western – Similar to Nyanza
Coast – Good for some production BUT it can’t match Central
Nairobi – Fertile but too urbanised for serious farming.
Eastern – Sigh… they are always short of food. ‘Good’ soil & water are in short supply.
N. Eastern – Too dry for decent agriculture.
Of course, all the provinces do have some ‘arable’ land but the majority of the provinces are as described.
The best land is being sub-divided relentlessly thus creating social problems as well as food shortages. A family that had a 10-acre piece of land in 1963 has probably been sub-divided into 1-acre plots by 2008.
Also… when I say over-population… I mean specifically LARGE families… I think the ideal is 2.1 kids… whereas in Kenya we have families with 5,6,7..10 kids!!!
Education: A smaller family is a better educated family. There are always exceptions but it is easier to (better) educate 2 kids than 10. What’s more… those 2 kids could be funded through university thus providing a better prepared populace for the ‘modern’ world.
Food: Often kids drop out of school coz of POOR diets. They can’t concentrate coz they are hungry. Perhaps the only good thing dan moi did was introduce ‘free’ milk in primary schools… it is easier to feed 2 kids than 10 kids… and perhaps a much better/healthier diet.
Health: See food above. 2 kids are easier to take care of. Many kids have developmental problems or will face diminished mental capacity if they miss out on essential nutrients while growing up. Then there are costs of treating a population that is unhealthy…
Resources: Kenya has limited natural resources. We spend resources on the poorest Kenyans (ostensibly from the families with 4-10 kids) when the output from them is negligible or much lower. Their consumption is well, just consumption, not an investment. We spend billions on barely educating 10 kids while we could spend the same to send 2 kids all the way to college.
From the economist:
The same could be said of Ireland in the 1850s, Italy in the 1880s and Oklahoma in the 1930s. In each case, large populations suffered economic shocks and responded in the same way. They left. Following the potato blight, the Irish population fell by 53 percent, at least as much because of migration as the deaths caused by famine. That benefited the migrants, of course. But Pritchett notes that it also left Ireland with fewer people to support; gross domestic product per capita never fell.
Pritchett contrasts Zambia, whose economy peaked in 1964 on the strength of copper mines. When copper markets declined, Zambians had no place to go; the population nearly tripled and per capita G.D.P. fell more than 40 percent. Pritchett likens 19th-century Ireland to a ghost town and calls places like Zambia “zombies” — lands of the living dead. While some distressed regions can adapt and prosper, by far a preferential fix, Pritchett argues that hundreds of millions of people are stuck in places with little chance for development. For them, only “out-migration can prevent an extended and permanent fall in wages.”
Clearly we need to consider other resources beyond land. Intellectual capital and new ways to generate wealth are urgently needed (read, holding breath for fiber optics). Even with the land mass we have, is underutilised… how about some badly needed irrigation, boreholes, rainfall harvesting… As for overpopulation, I have always wondered how with the UK being half the size of Kenya with the double the population, Kenya is the one that’s overpopulated. Perhaps the geographical dispersion of our people makes it very difficult to provides services efficiently. I would argue some places in Kenya suffer from underpopulation! We need to diversify forms of productivity and increase our country’s ability to provide for its population.. moving away for a solo focus on land as a means of production.
Anonymous,
Thank you for the UK example …
“I have always wondered how with the UK being half the size of Kenya with the double the population, Kenya is the one that’s overpopulated ?”
Coldtusker,
I don’t know what Prichett article you are referring to….
I still stand by what I said to you earlier,’Having a large population means a big human resource… A big human resource is a good thing because the country has large amounts of workers who are ready and willing to work…
Stop dancing here with your arguments …. We are not in a third world country for you to try and play your Juju with us…
I pointed out your wrong assertion on Capital Accumulation… You said and I quote, 5) “Over-population also denies Capital Accumulation …….. ” Please review this statement first before going anywhere with your blubbering…
The question should be, What work does the unemployed population do to earn a living ?……
KE please Kick out people who spoil a good discussion by dancing around ludicrous statements …. Obviously Coldtusker is too arrogant to accept his assertions are Incorrect …….
Am sure he did that on purpose to make people feel that you don’t have a good discussion and so that people could look elsewhere..
Inari:
You raise a good point about the rising underclass and the social implications that this scenario will eventually breed.
If you look at the country’s economic growth during the last five years, one thing stood out for me and it was the fact that the “growth” was not reducing the number of people who were living in extreme poverty. That is why I kept saying that the Kenyan economy was not making sense to me.
If you look at the growth in both China and India, one thing that stands out is the strides it made in terms of reducing the number of people who were living in extreme poverty. In India for example, over 50% of the people were classified as being extremely poor. However, after the economic reforms enacted in the 90’s, that number has now dropped to around 20% still living in abject poverty. The same thing has happened in China — the growth has lifted people out of extreme poverty.
However, what I have been saying on this blog for awhile is that the economic growth in Kenya was not being created by real production of goods or services. It was being created by a boost in remittances and by borrowing. And you can see why — after Moi left, there was a renewed sense of hope in the country’s future and remittances poured in from people who wanted to invest in their country in the hopes of one day returning. Then, banks made it easier for people to borrow and you ended up with all this money floating around that was piled into things like real estate and the stock exchange.
However, look at what is happening now as the global economy begins to trend downward– remittances have dropped by almost 50% and the stock market has gone quiet. Additionally, people were using loans to buy shares and as these loans become due and as the share prices of the stocks they bought don’t rise, people who were counting on rising stock prices forever, are now struggling to pay these loans. Add in inflation and you’ve got another problem.
So, at some point, if these inequality gaps continue and if the underclass continues to rise, things are going to blow up. Even if you have money, it would be dangerous to live in a vacuum and ignore this underclass because it will come back to bite.
KE,
Remmitances might have dropped by 50% but hey! we have a couple of billions of dollars from the Somali pirates to float in the economy. Thank God for Eastleigh.That will hold us till things get better. Just a stupid thought!
CT
What do you think about the fact that European countries are now looking for immigrants because their populations have fallen dramatically? They followed the policies that you are advocationg of small families but now those same policies have backfired.
It is projected that the EU will need £75 million immigrants in the next 50 years or the economic model they follow will collapse. There are now more people over the age 55 in the EU than there are under the age of 25 meaning that there will be a crunch at some point in the near future. To put in plainly, there will be less workers (read taxes) to support the retirees. This problem is already playing havoc with some European economies e.g. Italy and UK where changes are being introduced to raise the age of retirement.
This is a lesson that Kenya needs to learn. Copying western or easten policies blindly is very dangerous.
My own view is that Kenya and Africa as a whole is underpopulated. What we need is better governance and intergration of the ecnomies.
riaga:
“Stop dancing here with your arguments …. We are not in a third world country for you to try and play your Juju with us…”
1) ati, kenya is not a 3rd world country… Sure, your imagined uj1st world country has 10 million folks starving…
2) juju? only idiots believe in that bullshit.
KeiO: UK among other developed countries became ‘prosperous’ before facing population shortages.
Example of Singapore which has a low birth-rate among the non-Muslim population & encourages immigration. BUT they had to get there first!
In Kenya, tell me… how does a family with 10 starving kids ever get the per capita income up?
KE has emphasised that Kenya needs something to sell.
The TRUTH is bitter. Kenya did not & cannot do what the Asian Tigers have done. They are hardworking & believe in education.
Teachers are striking in Kenya as we speak.
Corruption is normal. Where is the outrage?
I still can’t get over riaga’s stupid (or merely idiotic?) comment about Kenya not being a 3rd world country… unless he meant it’s 4th world…
10 million starving (30% of the population). Eating raw mangoes. Eating ugali once a day & these are the lucky ones.
Water rationing if you are lucky. The rest have no piped water.
A president whose cabinet is full of thieves. Corruption up the wazoo.
A judiciary that is still dealing with cases filed in 2003.
A election body that can’t count.
A government owned pipeline company that ‘loses’ 126 million liters of fuel. ati, the petrol evaporated…
A country that has a holiday to celebrate ANOTHER country’s presidential election result!
Yo Dude Coldtusker….
I meant I am not in a third world country ……. am not in Kenya right now … Thats what I meant… Dude read what I said contextually not in pieces..
Instead of pie throwing at me at something You did not understand… Why don’t you answer on Assertion Number 5… I still haven’t heard anything about the wrong assertion you made…. That’s why I went silent…
I pointed out your wrong assertion on Capital Accumulation… You said and I quote, 5) “Over-population also denies Capital Accumulation …….. ” Please review this statement first before going anywhere with your blubbering…
Coldtusker…
Also so that you know… ‘Thirdworld country’ is an old term which being replaced with ‘Developing countries’
Kenya is a ‘developing country’…. I don’t use the term ‘thirdworld’….. And everyone knows Kenya is a developing country… So stop fighting your shadow…
Coldtusker ..
Please admit it… You are the weakest list in this discussion……………… U need to kick yourself out… Since you cannot even defend what you said… You credibility in the discussion diminished long time ago…
Please Kick yourself out…. or get someone to do it for you … KE i still suggest you kick out people who bring filibustering tricks in any discussion …
Coldtusker….
I knew you are pessimist from the very start…. Look at what you said…
“The TRUTH is bitter. Kenya did not & cannot do what the Asian Tigers have done”.
I had to Whistleblow on what you just the statement you made…… I still stand by what I said earlier … You are the weakest link In this discussion because of such statements like the quote above…
I believe the complete opposite… Kenya can do much more than what the Asian tigers have achieved … They just need good governance, accountability and Invest in the right things and they’ll do it… Its just that simple
Riaga:
I think both you and coldtusker are making good points.
is it wise to keep having multiple children when you know you don’t have an income to support them? obviously not.
On the other hand, if you had a job and were productive and making money, could you continue to have multiple children? yes.
So, both points are valid here.
riaga: Double-talk?
You are the one who used the term ‘third world’ then tell me that it’s ‘developing country’.
BTW, you can sugarcoat it, but Kenya remains a 3rd-world country (oops, is it developing country?).
Oh, you are one of those NRKs. You do not live here but oh, know so well what goes on here. Ivory Tower?
Over-population is exactly that. Kenya’s GDP is $600 or so. This is at poverty levels.
As KE points out… WTF do Kenyans do except (maybe) eat & shit? How can a country build it’s infrastructure & accumulate capital if it is a mere CONSUMER & not an investor?
India for all its problems, politics & population amazes me. They have managed to put up some impressive growth numbers over the past few years. BUT they are plagued with OVER-POPULATION. Unlike Kenya, they (& China) choose to tackle the problem. China even more so.
riaga: poor you.
Unless you live in N. Korea, asking to muzzle somebody is so… STUPID unless your other name is alfred ‘goebbels’ mutua or samuel poghisio or some idiot who believes he/she can control the blogosphere like the media!
The Asian Tiger phenomenon began with CLEAN & VISIONARY government. It started in the 1960s. These economies are now 1st world (oops, developed?) now.
Kenya – in part thanks to a burgeoning population – has become ‘poorer’ on a per capita basis. And has 10mn people (30%) going hungry.
Now, please tell me how Kenya is NOT a 3rd world country (oops, developing country)?
I cannot answer anything you say ‘coldtusker’ …. Thats It im done with rubbish..
Quick question to Coldtusker, how come you love using abbreviations the way you do? At times I try hard to figure out what most of these mean and when stuck, I just skip the point and move on to something else, microwaving ice cream for instance
.
Anyway what’s NRK supposed to mean? It’s one thing to put down a point that everyone understands and another to make points not understood by the readers.
NRK’s = Non-resident kenyans or as they are calling them now, “summer bunnies”.
So rather than blaming every excuse under the sun for not moving the country’s economy further forward… population etc.. How about we start debating what will get Kenya making significant strides? And yes, remittances need to go beyond feeding substinance.
NRIs (Non-resident Indians) are instrumental to India’s development… how can NRKs (Non-resident Kenyans), who in the last few years remitted more funds than foreign direct investment and AID flows, contribute to sustainable economic growth?
Annon:
The money the NRK’s are sending back is to sustain the basic needs of their own families.
Until they deal with this issue of corruption, nothing will ever change. There’s is too much theft occurring, it is bankrupting the country and it is creating a permanent underclass — a class of people who, no matter how hard they work, simply do not have a chance against these kinds of thieves.
Unless your parents are well connected and very rich politicians, I don’t see how you can return to Kenya and expect to start a business and compete on an even keel.
The system is not built to reward hard work and innovation and without these two things, you just cant build a real economy with real growth that will actually reduce the poverty numbers.
Do you get it now? you can’t have sustainable anything in the midst of this kind of massive theft.
Anon: As KE explained… funds are used to ’sustain’ not ‘invest’.
With the size of families we have in Kenya, an NRK (Pocahontas… this term/abbreviation has been used on KE’s blog for a while) sends cash used merely for sustenance. Not much else.
What is needed is inflow for PROJECTS (no, not uhuru-style projects). We need to privatize infrastructure e.g. the Nairobi-Kisumu road is AWFUL. So… a new road with tolls (as in the USA) would create jobs (to build & maintain), create efficiencies (cheaper to transport sugar & maize), increase exports (saves time), etc…
riaga: LOL. Pole. You sure your real name is not mutua or poghisio or kibz?
More info on family planning
http://www.bdafrica.com/index......temid=5821
and why it’s needed in Kenya
KE,
I have said time and again Kenya’s problem is not overpopulation …. U see… This is exactly what Museveni is talking about …. He in fact uses a different term ‘underpopulation’.
The only problem we have is that our population growth rate is higher than our capital growth rates…. and our technological growth rates…. These may seem like simple problems but they history has shown it takes bold measures to tackle them..
I understand the whole argument about family planing … That needs to get tackled but same thing need to be done for technological growth and making it easier to produce large quantities of produce and products in a shorter time …
Save for those who just think the population increase is the only problem … This is a problem which needs to be tackled not just in one way but from more than just that … we need to pass a newer model to the younger generation for … If we don’t they’ll face hard times…
Coldtusker,
I read the Article … I agree with its analysis … You should have made your arguments more clearer in you past post…
This statement gives a clearer picture of this ..
“Indeed, except for a few oil-rich countries, no developing country has successfully modernised without slowing population growth.”
Capital Accumulation does is not denied by overpopulation … but is reduced by the fact that that population growth rate is higher than the capital accumulation rates….
So denied is not the right word but reduces is the right word.
CT
Forget about riaga… Obviously he got NO crasp of figures & can really take TIME to learn…probably he is number 8 in a family of twelve
Kenyas population is Overpopulation because of Dependancy ratio !! Too many say dependents to a poor dad & mum
To simplify things to you Riaga consider same pouplation for Kenya say 40M but strictly each under 18 having one brother or sister….same population but LESS dependency…Got IT
“Lord”
Relax your ego brother … This is not a contest… And am not eighth in my family …
My rants seem to have back fired badly .. everybody seems to have mis understood my points … but anyways … good luck with your lives.
At least I did not Insult anybody … I guess KE could slide me the gentleman of the day Award… I eat a humble pie…
Riaga
You can take more than that!! where is your humour ? ! am a lord not “lord”
Hey do not get out!! We need your contribution…I mean it
Riaga: Accepted. And I hope the humble pie tastes good!
Anyway, finally you see my point… that Kenya’s growth rate has been held back (yes, by all the corruption) by the ‘consumption’ due to extra mouths. Like Lord says, too many dependents means you can’t afford to ’save’ (capital accumulation) on an average salary/income.
Another example is farming: it is better to have 5 healthy jersey cows than 50 emaciated masaai cows if you are into dairy farming. It is less work, you need less land, you get more milk and higher profits.
Or owning 5 acres in Central (if you are into intensive farming) than 50 acres in Ukambani. And if you only have 2 kids, then you do not sub-divide the 5 acres…
Riaga:
I still think you do have a point in that if the levels of productivity were increased, at least people would be able to provide basic things, even for their large families. So, again, I see both points. Yes, if you don’t have money, you probably shouldn’t have large families, but if you already have a large family, then you have to become more productive so you can at least feed them.
The problem with Kenya is that people with no money have large families and they are also not productive. That is a bad situation for them.
Someone mentioned to me that nobody really knows what the population of Kenya is (when was a census last done?) — the official figure is 35 million, but who knows?
If it gets to 50 million without an increased level of productivity, that could become very dangerous for the country. However, these politicians are so shortsighted that they can’t see a potentially looming crisis.
In 10 years, kenya’s population could hit 50 million. Then what?
KE: 35mn is an estimate. There should be a census every 10 years but there were allegations of tribal bias in the last census (1990?)
CT
The last census was 1999. One i due this August . Kenya has never failed to make a census
The problem is people tribalise the census results…..YES even this comming will be tribalised?
The census results are farily acurate (normaly under UN observers & experts).
…belivability is the problem because they may tell you your “enemy tribe” increased its population !!!