Celebrating the Love of Friends in a Loving World

Celebrating the Love of Friends in a Loving World
Red Roses for You, My Sweet Friends ... Total Love.

My Sweet Friends

My sweet friends,

We grow closer to each other;

When we interact together and share ideas;

The common faith that we share,

Binds our hearts in one accord.

For sweet friendships last a life time,

When built on mutual respect, humility and understanding;

Throughout each different season,

We find we are one in life.

Sweet friends are there through times of grief;

And times when hope is gone;

Always there with encouragement;

So we can carry on.

I thank the Lord for you,

My true and faithful friends;

To fondly speak with you, whether we agree or not,

On this, our beloved blog;

For sweet friends will stay, no matter what;

Giving support.

Together, our hearts and minds truly unite;

With the amazing love of sweet friends.

In the spirit of true friendship,

Best wishes, my sweet friends;

May the Lord bless you abundantly.

I remain, yours truly,

B.B. Bakampa.

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Wednesday, April 17, 2013

Pursuing Economic Development: The Role of Education and Training in Transitioning from Planned to Market-Based Economy



By Bakampa Brian Baryaguma
[Dip. Law (First Class) – LDC; Cert. PELD – NALI-K; LLB Student – Mak.]
February 2012

Abstract:

Education and training in general help countries manage their transition from planned to market-based economies by, building an integrated and self-sustaining economy, strengthening private absorption, integrating people in the market-based economy, and promoting nationalism and citizen responsibility generally. As this essay demonstrates, these roles cannot be overemphasized.

1.0. Introduction

‘Education constitutes the major focus of all development questions because it has the greatest influence on many different aspects of life and society. ... a lag in education may limit a country’s development potential much more than a lag in income.’ Lilli Sippel.[1]

Economic development comprises of three successive stages namely, factor-driven growth, investment-driven growth and innovation-driven growth.[2] As clearly indicated by Michael Mertaugh and Eric Hanushek, these stages have particular economic challenges and accordingly, the focus of economic production.[3]

The hallmark of economic development is material and financial prosperity, manifested in wealth accumulation. In the hope of stretching the level of wealth creation to the highest extent possible, man devises ingenuous modes of socio-economic organization, including planned and market-based economic arrangements. Underneath these arrangements lies the pursuit of economic development.

1.1.0. Key Definitions

In this essay, unless the context otherwise requires, the following terms and phrases shall carry the following meanings.

1.1.1. Economy

This term emanates from the word economics which literally, is the science of the production, distribution and consumption of goods or the condition of a country as to material prosperity.[4] In its normative form, economics evaluates the design of institutions for the organization of economic activity, for purposes of allocating social capital through markets.[5] Consequently, the term economy denotes a society’s system of controlling and managing its money, goods and other resources.[6]

1.1.2. Planned Economy

This is an economic system where the state centrally regulates the functioning and operation of the production process. Issues like what to produce, when to produce, who to produce, where to produce and for whom to produce, are determined by selected state institutions and individuals who think they know more than others. Hence, this economic system is often referred to as a command economy. Planned economies are associated with socialist countries and they are generally public.[7]

1.1.3. Market-based Economy

This is an economic system where the forces of demand and supply regulate the functioning and operation of the production process. Hence, this economic system is also known as free market or unplanned economy; implying that there is minimum freedom of choice. Market-based economies are synonymous with capitalist countries and they are largely private oriented.[8] They are driven by private interests urged by the desire to maximize personal as opposed to public satisfaction.

Planned or unplanned: the Underlying Controversy

Some economists have contested the attempted categorization of planned and unplanned/market-based economy. For example, Dr. Lawrence Bategeka, the Principle Research Fellow at Uganda’s Economic Policy Research Centre, describes this categorization as ‘disturbing’; for him, planned should be avoided in preference for command economy.[9] He reasons that there is planning within market-based economies in terms of raising resources (mainly through taxation i.e. whom to tax and with what intentions) and budget management thereafter.

The 2008-09 financial crisis showed the need for government intervention in markets because loose monetary policy in advanced countries, by way of inadequate prudential regulation of their financial systems, caused the crisis.[10] According to Otaviano Canuto and Marcelo Giugale, ‘... left by themselves, markets may not generate enough learning. Producers tend not to share profitable ideas, and financiers tend not to finance ideas they do not understand. There is room for public policy.’[11]

To this extent, it is true that the purported distinction between planned and market-based economy is hazy and shady.

1.1.4. Transition Countries
Generally, transition denotes the move from central planning and totalitarian government to market-based economy and democratic pluralism. Therefore, transition countries are countries changing from planned to market-based economies. In the International Handbook of Education for the Changing World of Work, it is stated that,
Transition countries are very diverse but what all have in common is that they are undergoing a fundamental change in their main societal institutions, including the education system. They are seeking to change from centralized authoritarian societies with some form of state-planned economy towards more democratic societies with a market-based economy. For that reason, they can be called ‘transition’ countries.[12]
I respectfully agree with this analysis. Contemporary transition followed the collapse of the communist economic and political system in Central and Eastern Europe in the summer and autumn of 1989.[13] These transition countries differed in many respects as far as their initial conditions were concerned. For instance, they were at varying levels of income and wealth; plus, there was a mismatch in the nature and extent of economic distortions and the level of institutional development.’[14]

Nevertheless, they had a common legacy characteristic of macrobalance by direct control where, for instance, financing of enterprises was set by a credit plan, taking into account investment targets, and implemented through a mono-bank financial sector; plan-centred coordination where economic activity was based on a central plan with quantitative output targets specified in physical units, among  others.[15] This system encouraged and promoted passive citizenship.[16]

Thus, although transition countries may have had specific problems and challenges, these were set within the context of commonly-shared concerns and experiences.

2.0. Learning from Experience: the Transition Process

‘Education is the memory of the past, the teacher of the present, the paradigm or the plan for the future.’ Tarcisio Agostoni.[17]

To appraise what role education and training in general have in helping countries manage their transition from planned to market-based economies, it is pertinent to reflect on the experience of former transition countries, upon transition.

2.1. The Impact of Transition

Experts have rightly observed that, ‘The transition from a planned economy to a market economy involves a complex process of institutional, structural and behavioural change.’[18] Naturally, the transition posed serious challenges, although it had pleasant surprises too.

2.1.1. Macroeconomic Destabilization

Price liberalization more often than not led to inflation, emanating from erosion of the government’s traditional tax base, due to output losses accentuated by pressure on state enterprises’ revenues, as a result of loss of monopoly power and difficulties in imposing payments discipline, through a previously passive (now active) financial system.[19]

2.1.2. Output Declines from Disruptions in the Coordinating Mechanism

Transition is associated with ‘The sudden abolition of planning in a complex, highly interdependent economy [thereby impairing] economic coordination, affecting both useful and unwanted production pending the establishment of a new, efficient system of market coordination.’[20] The dismantling of centrally planned production and consumption, occasions a shortage of commodities which must henceforth be provided by an amateur free market, run by forces of demand and supply. Absence of meaningful business interaction between buyers and sellers is responsible for the lack of coordination in the amateur free market.

2.1.3. Output Gains from Private Ownership and Private Sector Growth

Upon transition, private ownership of resources is legalized and this creates incentives to maximize returns. It also facilitates the establishment and enforcement of legal frameworks to support private initiatives and the facilitation of private entry, triggering a shift from an inefficient planned economy to an efficient market-based economy, thus reflecting individual preference rather than the demands of a plan.[21]

2.1.4. Occurrence of Microeconomic and Sectoral Reallocations

Liberalization of wages and prices, as well as cuts in state subsidies occasion the occurrence of microeconomic and sectoral reallocations in the economy, whereby previously repressed sectors like services, expand and offset reductions in industry.[22] This facilitates the emergence of a vibrant private sector, which is the backbone of a market-based economy.

3.0. From Planned to Market-based Economy ­– The Role of Education and Training

‘Education plays a key role in supporting the process of development from low-income, resource-based economies to high-income, knowledge-based economies.’ Michael Mertaugh and Eric Hanushek.[23]

The role that education and training in general have in helping countries manage their transition from planned to market-based economies, may be deciphered from the impact of transition on transition countries.

3.1. Building an Integrated and Self-sustaining Economy

The shift from a planned to a market-based economic system occasions disruptions in the coordinating mechanisms of the economy, leading to acute shortages of goods and services. Therefore, education and training in general plays the role of building an integrated and self-sustaining economy, by accelerating the establishment of a new and efficient system of market coordination, through bridging the gap between the hitherto detached forces of demand and supply.

The introduction of business oriented courses like commerce, entrepreneurship and business administration, at all levels of education, is instrumental in achieving market coordination, which is a prerequisite to market integration. Lilli Sippel et al noted that, ‘Education means much more than the acquisition of information. In an interconnected world, where information is almost always available, classifying information and being able to obtain the most out of it is essential.’ The essence of education is enabling people to understand the way the market works, automatically leading to a self-sustaining economy in both the medium and long run. As Bank of Uganda’s Assistant Director, Research, Jimmy Apaa Okello, says, ‘... education and training sensitize citizens on the general state of the economy which enables the growth of robust service and manufacturing sectors.’[24]

The 2008-2009 global financial crisis demonstrated that understanding the way the market operates is vital for economic management and stability, lest there is a financial meltdown.[25] The crisis shook the ground under the conventional wisdom that had been held as true for decades, thereby marking the beginning of a new era of market governance.

3.2. Strengthening Private Absorption

Dismantling a centrally planned economic system enables private enterprise and ownership of resources. It also causes microeconomic and sectoral reallocations, which trigger the expansion of hitherto repressed service sectors, thus facilitating the growth of the private sector.

But private sector growth depends on private absorption i.e. private consumption and investment. Thus, the question is, in a fast changing world of global competition, what education and training will the country need to stay ahead of the pack? The role of education and training, in this highly globalized and competitive world, is to nurture sustainable consumption and investment techniques.

Thus, investing in management and worker skills alike is paramount because today’s economies are knowledge-driven. There is need to create a dynamic and creative workforce that will adequately respond to the demands of a now actively consuming public, no longer tied to the dictates of a plan. Further still, these knowledge-driven economies are technology-centred, thus requiring a formally educated labour force to enable more rapid technology diffusion.[26] Equally important, consumers should be guided on the appropriate consumption habits because in a liberalized market, production is driven by consumer choice, rather than by central production targets.[27]

3.3. Integrating People in the Market-based Economy

Transition is characterized by macroeconomic destabilization, manifested in form of high prices, high unemployment rates and subsidy cuts, usually occasioned by hard budget constraints. Transition, being a move from passiveness to activeness, inevitably changes people’s lives.

A market-based economy is like a rapidly flowing river or a fast speeding bus, with no room for sluggishness. It rewards hard workers, who move with its tide and pace. People should be educated and trained to cope with the shocks attendant to the accelerated pace of life under the new economic system. The lazy and sleeping ones should be woken up too.

Usually, transition countries aspire for higher living standards.[28] Education motivates people to work hard to improve their situation and as Zig Ziglar says, ‘Motivation is the spark that lights the fire of knowledge and fuels the engine of accomplishment. It maximizes and maintains momentum.’[29] So does education. In this respect, the role of education and training is to equip all actors with the necessary knowledge and skills that will involve people in the market-based economy so that they are not left behind.

3.4. Promoting Nationalism and Citizen Responsibility Generally

Transition is accompanied by the desire for greater individual freedom.[30] Transition entails a change of political systems: from dictatorship or totalitarianism to democracy or plural governance. Freedoms and liberalization drive growth by facilitating the urge for economic and political freedoms.[31] In fact, people’s ultimate behaviour is shaped by their economic experiences.

According to Dr. Marcelo Giugale, World Bank Director of Economic Policy and Poverty Reduction Programmes for Africa, a new state-citizen relationship has emerged today where we now have a direct relationship between the state and the individual.[32] According to him, ‘With the relationship between the state and the people changing, so are the tools through which the two relate to each other. The final outcome may very well be better governments’ and that this has precipitated the value for accountability and the importance of governance to our day-to-day life.[33] There is, therefore, need for a nationalistic and generally responsible citizenry that will prop, sustain and defend the new socio-economic order.

Nationalism is synonymous with patriotism and according to Mark Twain, ‘Patriotism is supporting your country all the time and your government only when it deserves it.’ Nationalism is deserved only when there is what Manning and Wetzel have termed Trust in Government. To them,
Trust in Government means that citizens expect the system and political incumbents to be responsive, honest, and competent, even in the absence of constant scrutiny. ... Trust in Government is taken to be a general public assessment of government’s current entitlement to be in a position to enforce its policy decisions on individuals and firms and, more fundamentally, that it is generally felt to be reasonable that government retains a monopoly on the legitimate use of violence in the enforcement of social order.[34]
Nationalism is important because distrustful citizens minimize their relationship with the state by staying out of politics, relying on the informal economy, settling disputes extra-judicially and even evading taxes. This is confirmed by Manning and Wetzel who also found that ‘... low Trust in Government can weaken the social contract ...’ between citizens and their leaders, thereby jeopardizing investment, perpetuating low confidence in public institutions, causing people to shun state services, resist paying taxes and denounce legal obligations.[35]

Education and training clarifies the relationship between the governors and the governed. Consequently, strong institutions will be built to sustain the new era of governance, even if it is state-individual centred, especially considering that the new era will not throw out the state.[36] Thus, it is pertinent that ‘... the curriculum should be structured in the sense that citizens can clearly tell what each party’s role is’[37] because ‘... when the competences of the market are not understood, then dictatorship will be the likely result.’[38]

4.0. Conclusion

‘Economic and political tectonic plates are shifting. We can shift with them, or we can continue to see a new world through the prism of the old. We must recognize new realities and act on them.’[39]

In Central and Eastern Europe,
A prevailing view at the start of the transition was that education and training systems were among the few creations of the former communist countries that did not need fixing to function effectively in the capitalist world. It became apparent early in the transition, however, that this impression was profoundly mistaken. The accession countries soon encountered problems in maintaining their relatively advanced education systems as output and revenues fell ...’.[40]
This extract demonstrates the critical role that education and training in general have in helping countries manage their transition from planned to market-based economies. This is an area that no transition country can afford to neglect.

However, as Makerere University’s Associate Professor of Law, Dr. John-Jean Barya avers, the requisite type of education and training should be the kind that makes people conscious of the underlying problems and the need to change the social set-up.[41] The reason? William Butler Yeats gave it: ‘Education is meant to ignite fires, not fill empty pails.’

Notes and References

1. Lilli Sippel et alAfrica’s Demographic Challenges: How a young population can make development possible (2011), at 60.

2. Michael Mertaugh and Eric Hanushek, ‘Education and Training’, in Nicholas Barrr (ed), Labor Markets and Social Policy in Central and Eastern Europe: The Accession and Beyond (2005), at 228.

3. Ibid., at 229.

4. A.S. Hornby, A.P. Cowie and A.C. Gimson, Oxford Advanced Learner’s Dictionary of Current English (1983), at 280.

5.      Joel P. Trachtman, The International Economic Law Revolution’, JIEL (1996), at 2-3.

6.      A.S. Hornby, A.P. Cowie and A.C. Gimson, supra note 4.

7.      Martha de Melo, Cevdet Denizer and Alan Gelb, ‘From Plan to Market: Patterns of Transition’, (1996), at 20.

8.      Ibid.

9.      Interview with him held on Monday, 06 February, 2012 at 10:45 am.

10.  Luis Servén, ‘Macroprudential Policies in the Wake of the Global Financial Crisis’ in Otaviano Canuto and Marcelo Giugale (eds), The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World (2010), at 129.

11.  Otaviano Canuto and Marcelo Giugale (eds), The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World (2010), at 4.

12.  Rupert Maclean, David Wilson and Chris Chinien (eds), International Handbook of Education for the Changing World of Work vol.1, at 504.

13.  Nicholas Barr, ‘From Transition to Accession’, in Nicholas Barrr (ed), Labor Markets and Social Policy in Central and Eastern Europe: The Accession and Beyond (2005), at 1.

14.  Martha de Melo, Cevdet Denizer and Alan Gelb, supra note 7, at 3.

15.  Ibid.

16.  Nicholas Barr, supra note 13, at 6.

17.  Tarcisio Agostoni, May the State Kill? at 50.

18.  Martha de Melo, Cevdet Denizer and Alan Gelb, supra note 7, at 1.

19.  Ibid., at 4.

20.  Ibid., at 5.

21.  Ibid.

22.  Ibid.

23.  Michael Mertaugh and Eric Hanushek, supra note 2.

24.  Interview with him held on Friday, 03 February, 2012 at 15:00 hrs.

25.  Luis Servén, supra note 10, at 129-141.

26.  Otaviano Canuto, ‘Recoupling or Switchover? Developing Countries in the Global Economy’, in Otaviano Canuto and Marcelo Giugale (eds), The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World (2010), at 42.

27.  Michael Mertaugh and Eric Hanushek, supra note 2, at 210.

28.  Nicholas Barr, supra note 13, at 3.

29.  Zig Ziglar, Over the Top (1999), at 105.

30.  Nicholas Barr, supra note 13, at 3.

31.  USA President Barack Obama, remarked that, ‘Prosperity without freedom is a form of poverty.’

32.  Marcelo Giugale, ‘The Era of Governance’, public lecture delivered at Statistics House, Kampala-Uganda, on Thursday, February 02, 2012 at 14:00 hrs.

33.  Ibid.

34.  Nick Manning and Deborah L. Wetzel, ‘Tales of the Unexpected: Rebuilding Trust in Government’, in Otaviano Canuto and Marcelo Giugale (eds), The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World (2010), at 164.

35.  Ibid., at 164-165.

36.  Lawrence Bategeka, while discussing Dr. Marcelo’s paper. See, Marcelo Giugale, supra note 32.

37.  Jimmy Apaa Okello, supra note 24.

38.  Lawrence Bategeka, supra note 9.

39.  Robert B. Zoellick, ‘The End of the Third World? Modernizing Multilateralism for a Multipolar World’, (2010), at 1.

40.  Michael Mertaugh and Eric Hanushek, supra note 2, at 207.

41.  Interview with him held on Monday, 06 June, 2011 at 17:00 hrs.