Kafo Didi: Living Large but Producing very Little

*J. Atsu Amegashie *

February 13, 2011

Conventional wisdom strongly suggests that corruption is a way of life in

Ghana. There is perhaps no Ghanaian of adult age who has never paid a bribe

for a government service.

About 28.5% of households in Ghana live on less than $2 a day. Recently

revised and favorable figures by the Ghana Statistical Service show that the

country’s per capita GDP is not more than $1500; the IMF’s figure (PPP) is

$1600.

How are people expected to live in a country where the average income is

$1600, credit markets are very weak or inaccessible to most people, and yet

people must make two-year advance payments of about $2000 or more for a

decent apartment? The cost of living is very high in Ghana. We are not

producing enough. Our GDP is very low. Yet that does not deter many

Ghanaians from living large . There are three ways of living large when you

don’t produce enough: (1) borrow (what you have not produced); (2) steal

(what you have not produced): corruption; and (3) depend on the charity of

others: foreign aid or welfare payments.

Most people in the western world go for the first option and also rely on

the third option because they could recieve transfers from the state. This

is because they have well developed credit markets and are integrated in

global credit markets; their banks can raise funds on international credit

markets (e.g., borrow from China by issuing financial securities). Of

course, the recent financial crisis has shown that this not a sustainable

plan. You cannot borrow forever. In western economies, transfers from the

state to the poor are possible because of their sufficiently high national

output.

In countries like Ghana where credit markets are very weak or not easily

accessible, most people choose to steal what they have not produced

(corruption). And, in most cases, they do so by stealing from the state.

This means that resources required for crucial public investments in human

capital (i.e., education, health care), roads, law and order, etc end up in

hands of private individuals (politicians, civil servants) corporations,

etc. This creates a vicious circle where the lack of these investments

reduces the economy’s productive capacity which, in turn, creates the

conditions that exacerbate the incentive to steal.

Differences in law enforcement and monitoring also account for the

differences in corruption. However, the lack of credit could also force

people to find corrupt ways of making ends meet. In addition to reducing the

state's capacity to raise revenue for public goods, corruption, if seen as

an extra tax on economic activities, worsens the efficiency losses of

taxation especially when the government has optimally chosen taxes

(including duties and user fees).

Foreign aid may facilitate "living large but producing very little". But it

is not enough and rarely ends up in the hands of those who really need it;

note that the USA’s MCA aid of $547 million over 5 years was approximately

$5 per Ghanaian per year. More importantly, foreign aid has the deleterious

effect of redirecting energies from domestic sources of revenue mobilization

to foreign sources. This is evident in the recent revelations that emerged

from Anas Aremeyaw’s undercover work “Enemies of the nation.” If foreign

aid is a gift (pure transfer), it makes us lazy and overly dependent on it

and if it is a loan, then we still have to produce enough to consume and

have something left over to repay the loan. Dependence on foreign aid is

not the path to economic prosperity.

Theft can be legal or illegal. When theft is legal, it is euphemistically

referred to as rent-seeking, a term coined by Anne Krueger of Stanford

University and former chief economist of the World Bank. Political lobbying

may be legal but it may still be a corrupt activity. Lobbying for government

regulations that redistribute income from one group to another but reduce an

economy’s output of goods and services is an example of rent-seeking. In a

1974 article, Anne Krueger provided quantitative estimates of the social

losses imposed on the economies of India and Turkey by rent-seeking for

import licences from the state. According to her estimates, such losses

amounted in 1964 to 7.3 per cent of the national income of India and to a

staggering 15 per cent of the national income of Turkey. While rent-seeking

activity exists in every economy, it is worse in economies with a weak

private sector and a public sector that is the major employer. In these

economies, it leads to a misallocation of talent because some of the best

and brightest end up being sycophants and rent-seekers in the public sector

rather than competing in the private sector. Others vote with their feet by

leaving the country. A weak private sector also means there is a very high

return to gaining power in the public sector, so national elections become

"do-or-die" affairs.

The phenomenon of living large but producing very little is more likely in

countries with strong extended families. In his 1955 book, “the theory of

economic growth”, the Carribean economist and nobel laureate, the late W.

Arthur Lewis remarked that:

“Where the extended family system exists, any member of the family whose

income increases may be besieged by correspondingly increased demands for

support from a large number of distant relations … A strong sense of family

obligation ... may cause a man to appoint relatives to jobs for which they

are unsuited ...” (Lewis 1955, p. 114).

The above sentiment will resonate with most successful Ghanaians. This

pressure from the family may also cause them to steal from the state or from

their employer in the private sector. It may be fear rather than affection

for their family members which drives them to nepotism and theft

(corruption). This point was made by Jean-Philippe Platteau in his 2000 book

“Institutions, Social Norms, and Economic Development”,

“… principles of equity are so adverse to change [that] a single individual,

even when endowed with special qualities and powerful psychological

resources, cannot successfully defy the conventions of the society. He will

unavoidably … be squashed by various forms of opposition, especially when

his economic success depends on his behavior as a hardnosed businessman in

dealing with fellow tribesmen. To break through, he needs the protection

afforded by the deviant actions of a sufficient number of other innovators

in his locality. Rising economic opportunities alone will usually not

suffice to generate dynamic entrepreneurs in the absence of a critical mass

of cultural energies harnessed towards countering social resistance.”

Related to the previous point is a useful idea stressed by Jean-Philippe

Platteau in his aforementioned book. It is the distinction between limited

versus generalized morality. In hierarchical societies, codes of good

conduct and honest behavior are often confined to small circles of related

people (members of the family, or of the clan). Outside of this small

network, opportunistic and highly selfish behavior is regarded as natural

and morally acceptable. In contrast, modern democratic societies tend to

have abstract rules of good conduct that are applicable to many social

situations, and not just in a small network of personal friends and

relatives. As argued by Weber, the emancipation of the individual from

feudal arrangements has typically been associated with a diffusion of

generalized morality, and with the ability to identify oneself with a

society of abstract individuals who are entitled to specific rights. This

engenders nation building and, with reasonable law enforcement, reduces the

incentive to steal from the state, and also induces people to enter into

credit contracts and other contracts with strangers.

It has been argued that in most sub-Saharan African countries, the kin

system is a valuable institution that provides critical community goods and

insurance services in the absence of market or public provision. However,

the nature of risk-sharing and insurance are different from how these

institutions are commonly understood in modern economics. In modern

economies, the participants in an insurance market periodically pool their

risks (i.e., contribute to the insurance fund through the payment of

premiums) before the state of the world is known (who will be lucky or

fortunate; who will be in a car accident or not; who will be unemployed or

not; etc). In the insurance scheme of the extended family or kinship

system, no risks or contributions are pooled before the state of the world

is known. Instead, there is an implicit social contract that, after the

state of the world is known, the lucky ones should transfer resources to the

unlucky. Once the state of the world is revealed, everyone depends on those

that were successful for a very long time, if not forever. This has helped

many hard-working Ghanaians. But in most cases, it appears that it has been

abused. This insurance scheme is more redistributive than it is

efficiency-enhancing.

While most participants in insurance schemes in modern economies take their

actions behind a Rawlsian “veil of ignorance”, the insurance schemes of the

extended family system are driven by a “veil of full knowledge.” This need

not be a problem if, like a system of pay-as-you-go social security, the

population of those who are successful is rising faster than the population

of those who are unsuccessful. Unfortunately, this is not the case. In a

world of poor governance, limited opportunities, and perverse incentives,

successful family members carry a very heavy burden. This leads to low

national output and worsens the problem of corruption.

However, family pressures or a high dependency ratio do not explain

everything. Greed also plays a very important role; it partly explains the

desire to "live large while producing very little". During their tenure in

office, government officials like the president and some ministers of state

enjoy so many perks; some do not pay taxes, do not pay for their

accommodation, electricity, transportation, healthcare, clothing and

security. They are also paid a decent salary with enviable bonuses and per

diems. Yet when ex-president Kuffour left office in 2009, he wanted the

state to give him six fully insured vehicles – fueled and chauffeur driven,

to be replaced every four years; two houses; an annual luxury holiday

package; a lifelong health package; a non-taxable pension; security

personnel; $1 million for a foundation, and more. When his predecessor, JJ

Rawlings left office in January 2001, he moved into the now ravaged mansion

at Ridge by merging two government bungalows. He is alleged to have taken 13

cars with him. He was in power for 19 years -- 11 years as a dictator -- and

has his own mansion at Agyirigano, a suburb of Accra, but wants the state to

accommodate him.

Why do our leaders seek medical attention abroad (in Western countries)

while they refuse to invest enough resources in our domestic health system?

Foreign hospitals for the elites but ill-equipped and under-staffed local

hospitals for the masses? Everyone is trying to raid the “commons.”

In poor and very unequal societies, the return to social status is very

high. Ghana has both: a high level of poverty and a high level of

inequality. Unfortunately, this creates the right conditions for a poverty

trap because in societies with higher levels of poverty, the emphasis on

material-driven status -- when it financed from public coffers --- is

relatively more counter-productive. A very high return on social status is

likely to induce professors, doctors, engineers, and other high-ability

individuals to invest more in directly unproductive rent-seeking activities

like lobbying, and networking with the political elites as part of wealth

redistribution (i.e., get their piece of the national pie).

We care too much about social status that is based on material wealth

regardless of how such material wealth was acquired. In the western world,

the richest people are in the private sector and the politicians, at least

while in office, do not dream of competing with them nor do they see it as a

sign of lower status. They cannot afford the cars and houses that these

people in the private sector can afford. In Ghana and other parts of Africa,

the politician wants to earn more than or be in the same class as the

businessmen, CEOs, and other professionals in the private sector. A friend

in Ottawa (Canada) rides the bus with the Governor of the Bank of Canada.

When US vice-president Joe Biden was a member of the senate, he took the

train to work. Even if the public transport system is good, I do not think

that a professor, governor of the central bank, or minister of state in

Ghana could take the bus or train to work without public ridicule. One

former official of Ghana, whose name I have forgotten, justified the

practice of allowing ministers to retire with state cars on the grounds that

ex-ministers should not use the same means of transportation as the public.

The attitudes of our leaders and are own attitudes reinforce each other.

After all, our leaders are the products of our own societies and so reflect

our values. How many Ghanaians wouldn’t laugh at a former minister of state

if his car was below the average quality of cars in Ghana? How many will

praise him for his selflessness and unassuming lifestyle if he lived in a

modest two bedroom apartment? We, the people, have to respect and honor

those who lead a modest life and work hard; we should not glorify theft. We

are part of the problem. Still, our politicians must lead by example.

In Ghana and most countries in sub-Saharan Africa, most of our problems are

typically chicken-or-egg problems. Solving such problems requires a lot of

discipline. Given that we are not producing enough for all, we have to

change our values by not trying to live large; too many people want SUVs;

want to pay the fees of their kids for an education in a western country;

afford big houses and vacations abroad; etc. We cannot reap what we have not

sown. We have to invest, be patient, and wait for the fruits of our labor

to grow. But doing so requires a demonstration by our leaders that they are

in the same boat with us or that their boat is not too big and cozy.

The fight against corruption requires a non-partisan approach; it should not

be politicized. The test should not be which party did marginally better

than the other. The benchmark should not be what the other party did.

Instead, it must be a high level of demonstrable commitment to fight

corruption from the top to the bottom. Let’s produce more and stop living

large. In the era of accountability and responsibility, Kutu Acheampong’s

“Kafo didi” should not be our guiding principle. When we produce very little

but live large , we are, to borrow the words of the dancehall musicians

Bounty Killer and Barrington Levy, “living dangerously”.