Capitalism and governance

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

What is capitalism? This is the question Harvard University professor Rebecca Henderson starts with in her 2020 book “Reimagining capitalism: How business can save the world “. Capitalism is certainly “the greatest source of prosperity the world has ever seen”. But it is also on “the verge of destroying the planet and destabilizing society”. Capitalism has been a huge success and a disastrous failure. Henderson’s thesis is that a rethinking may enable us enjoy more of the good and prevent or mitigate the bad.

According to Henderson, “the three greatest problems of our time” are “massive environmental degradation, economic inequality, and institutional collapse.” Fossil fuels, which drive our industries, are destroying the earth’s climate. Our oceans are becoming acidic, with sea levels rising in tandem. There is increasingly less arable land. And we no longer have enough fresh water to meet our needs. If we do not change the way we do things, there would be deeper economic recessions, more flooding, and hunger in the nearer future.

In Africa, we know a lot about environmental degradation. Foreign firms extract mineral resources from our lands with scant regard for sustainability. But are they entirely to blame if they do so in the full glare of the authorities with relative impunity? We also know about hunger, drought, and increasingly now, flooding. Imagine the bizarre contrast. One moment, we worry about little or no rainfall. Then it pours, and our worry turns to the harvest, as a big part is washed away.

We also know a bit about the value of fresh water. With dysfunctional or no water infrastructure in most of our cities, we find solace in water drawn from boreholes and wells, which we are barely able to purify enough to avoid falling ill. But even that is becoming scarce in fast-drying northern lands owing to climate change. Such is the value now placed on the resource that one African government is mulling the enactment of a law to regulate water as a resource like it does crude oil and other extractives. Talk about an example of capitalism gone too far or governance gone awry.

But our type of capitalism is not the free-market kind. Ours is crony capitalism, which Henderson defines as “a political system in which the rich and the powerful get together to run the state – and the market – for their benefit.” “Extractive elites monopolize economic activity and systematically underinvest (when they invest at all) in public goods such as roads, hospitals, and schools (Henderson, 2020).” Our elites are extractive. So even when they mean well – they rarely do – we find it hard to believe them.

Thus, if you wonder why there are uproars when supposedly development-oriented policies are announced, this is why. The people do not believe that they would be the ultimate beneficiaries. So when electricity tariffs are raised, petroleum pricing liberalised, and water about to be regulated, there is hardly any explanation by a government that would be convincing enough to its majority poor, whose already meagre earnings would afford them even less.

What is the role of business in all these? Whether our type of capitalism is underpinned by cronies or the vagaries of the markets or both, their shareholders are the main beneficiaries. So in order to keep their spoils, they have to be mindful of the gaps in public governance in their respective jurisdictions.

Our power companies should abide by the deliberate price discrimination mechanism in the regulations to ensure the poor are able to afford enough electricity for their needs. Oil and mining companies should extract resources in our lands with as much care as they do back home. And our governments should certainly not regulate the very basic amenities they have failed to provide.

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