Fiifi Kwetey: Go Back To School And Learn Economics

Wed, 9 Oct 2013 Source: Baidoo, Philip Kobina

A couple of weeks ago the Minister of State in charge of Financial and Allied Institutions, Fiifi Kwetey, labelled all financial institutions in the country as greedy. And that they are impeding the national economic growth by the high interest they charge on loans, and the pittance they pay back to depositors. I read the piece with a full blown outrage, and pondered whether he really understood what he was ranting about. I was tempted to write him off as a clueless bureaucrat, then l realised that he is a politician. Besides, if it was made by some ordinary political hack I would have conclusively rationalise the folly based on terminal ignorance. I am not sure whether Ghanaian schools still uses Owusu Asante's ‘Economics Without Tears’. He made a controversial statement in his book that anybody who completes O-Level without studying economics is not educated. But here is a case where this myopic politician has a degree in economics and with practical knowledge in the financial industry to make this outrageous, emotive and populist punch line is wicked and insidious.

Well, I am not a banker; therefore, there is no question of self preservation regarding the expression of my personal revulsion at this blatant disregard of economic facts. On the other hand, even if I was I wouldn’t let this smoke screen be used as a diversion to cover their incompetence and unmitigated stupidity. The accusation of greed by Fiifi Kwetey against the bankers is an old trick used by politicians or people in authority to absolve themselves from blame when the economy they have been hired to manage is under performing or takes a nose dive. The term Shylock with its anti-Semitic connotation was borne out of this mentality. The worse forms of it led to terrible pogroms in medieval Europe when clever, but cynical leaders in Europe use the Jews as cash cows, or treacherously want somebody to blame for their incompetence.

It is a similar position held by roughnecks who have no understanding as to how a national economy functions when they come to power through the barrel of the gun. If you can recall, after the national economy had taken a severe beaten from mismanagement and lack of foresight throughout the 70s that naive hooligan popularly known as Junior Jesus accused ordinary market traders of greed on the back of economically meaningless word like profiteering. Some of them were stripped naked and beaten savagely by his jackboot thugs for just going about their normal business sanctioned by the natural law of demand and supply. I personally thought we have left this part of our history behind – a period of ignorance. But out of calculated misdirection it is coming back via the backdoor through misrepresentation of the natural outcome of the interaction between demand and supply.

Now, the government due to ineptitude is unable to collect her taxes. So, they fall short of their revenue. In other to attract the public to buy government Treasury Bills to make up for the shortfall, the BoG has to offer an attractive rate currently at 19%. As a result, capital that should be at the disposal of banks is siphoned off to be used by the government. There is no gain repeating to anybody who understands economics that there is finite liquidity in the economy. One of the first lessons in economics postulates that the cost of buying treasury bills is the other things that the same money is not available to obtain, e.g. the limitation of banker’s ability to attract depositors. Anybody who tells you that the money that goes to the government comes back into the economy through salaries and payment of contracts is delusionary. The fact is they are not the same. They come back fragmented and unable to provide the critical mass needed for the chain reaction the economy desperately needs. The outcome is a double tragedy. The government spends money that it has not earned in the course of the accounting year. Obviously, the effect is synonymous to printing money, which creates inflation. Secondly, money is a commodity, and it has got a price called interest. He is assuming that the banks set their interest rates independently. The minimum rate the bankers can offer to attract depositors is the going rate the government offers customers for her treasury bills. As a result of the inflation discussed earlier, the Achilles’ heel at the centre of this firestorm, which Fiifi Kwetey deliberately ignores, determines the dynamics of the money market. Money is not a tangible asset that can appreciate with time; it always depreciates when the inflationary rate is uneconomically high. Therefore, with the assets of the bankers constantly depreciating in a volatile economy they need a high interest rate to protect the value of their investment and to be able to pay their workers for the service they provide, besides making some profit; after all they are not running a charity.

I will offer one practical example to make my point crystal clear. A classic case in point regarding this banker’s dilemma is the problem Tema Development Corporation – TDC experienced from the late 70s to the early 80s. Inflation enabled those who bought their property on high purchase – the term used at the time, to later finance the rest of their payments with worthless currency, which could basically not refinance new buildings. Similarly, if you are a banker and don’t charge the appropriate interest in an economy that inflation hovers around 10 and15 percent a year. Within a 10years period the principal capital would have been decimated when you charge interest way below the inflationary rate.

On a practical note, let’s assume that he loves the country so much, and he patently believes that these bankers are stifling economic growth with their selfish business practices. All that he needs to do is to convince the powers that be to set up a new bank. Better still, he can get GCB, which is partly owned by the government to dance to their tune. And if his argument is anything to go by, he can tell them to offer depositors higher rate, which will attract more depositors being short changed by the other banks.

In his diatribe he came out as smart person when he asserted that competition in the telecom industry has brought down prices. The telecom service example is like comparing chalk and cheese. Every business has risk and the banking industry has its peculiar exposure. The telecom has entirely different cash flow system. They even sell their prepaid talk time and earn interest on their sales revenue before their customers use their credit. Their risk are totally different, perhaps, favourable than what pertains in the banking industry. The banks deal with loan delinquency and inflation, because of the long term nature of their business. For him to make that comparison is bonkers. However, on a hypothetical note if they are operating as a cartel to fix prices for their benefit, they should be investigated and prosecuted if they are found to be culpable.

The word greed is a loaded word, and it is very difficult to safely label anyone as such. What he is accusing the bankers of does not make any economic sense. Either he knows the truth, but chooses to throw dust into the eye of the electorates, or he has no inkling what is talking about. This is the thinking of an ignorant bleeding heart socialist, which has been the bane of our poverty institutionalised by our pioneers. Currently, as the economy once again begins to falter they are looking for bogeymen to take the blame for their ineffectiveness and unforgivable foolishness.

If you don’t understand economics don’t make a fool of yourself Mr Fiifi Kwetey. Stop this childish tantrum and go back to school to learn the basic concept of economics, i.e. Demand and Supply and its practical application. The cause and effect of human action, that is praxeology made popular by the Austrian economist Ludwig von Mises. The word greedy can best be used to describe his kind. And I will like to ask a reverse question. Will he accept a lesser salary for the job he does or stay at his post if another employer can offer a better salary and perks than he receives now? If not, then keep your mouth shut and just receive your salary for an unnecessary duplicated ministerial position.

Philip Kobina Baidoo Jnr



Columnist: Baidoo, Philip Kobina