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Crony Capitalism and State Capture 2: Documents Reveal the Kenyatta Family’s Plans to Take over Lending to SMEs

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A proposed mobile phone lending platform called Wezesha and described as a “collaborative initiative to bridge the access to credit by micro and small enterprises”, will be managed by five banks under the leadership of the Kenyatta Family-owned Commercial Bank of Africa. The Huduma Number initiative is central to the new scheme, and could explain the government’s insistence on rolling out biometric Identity Cards.

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Crony Capitalism and State Capture 2: Documents Reveal the Kenyatta Family’s Plans to Take over Lending to SMEs
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“Uhuru Kenyatta’s assumption of the presidency has injected fresh energy into his family’s commercial empire, putting a number of its units on an expansion mode that is expected to consolidate its position as one of the largest business dynasties in Kenya” ~ Business Daily, Monday, November 11, 2013.

A few days ago, the Dairy Board of Kenya published, then recalled, draft regulations that sought, among other things, to outlaw and criminalize farmer-to-consumer raw milk sales. Essentially farmers would be compelled to sell milk to processors or other intermediaries (cooperatives or businesses) licensed and regulated by the Board. The withdrawal was in response to a huge public blowback, including a trending hashtag #Kenyattamilkbill, mobilising for the reactivation of the boycott against Brookside Dairy products. It was notable that the Dairy Board’s reversal of its draft regulations followed a press release by Brookside Dairies objecting to the regulations citing specifically the levies that the Board proposed on dairy businesses. Tellingly, Brookside’s statement was silent on the question of outlawing farmer to consumer raw milk sales.

This story is about an even more audacious scheme in the Kenyatta empire’s “expansion drive”, the most egregious case of policy and regulatory capture I have encountered…

As a previous column, Crony Capitalism and State Capture: The Kenyatta Family Story observed, Uhuru Kenyatta’s presidency has delivered remarkable returns-on-investment for the family enterprise:

“During Uhuru Kenyatta’s first term the consumer price of milk increased 67 percent (from KSh 36 to KSh 60 per half-litre packet), while producer prices remained unchanged at Sh 35 per litre), effectively increasing processors’ gross margin by 130 percent (from Sh37 to Sh 85 per litre). Given the industry’s 400m litre annual throughput and Kenyatta family’s market share, which stands at 45 percent, the consumer squeeze translates to an increase of the Kenyatta Family’s turnover from KSh 13 billion to KSh 22 billion, and gross margin from KSh 6.7 billion to KSh 15 billion a year.”

Not enough, not by a long shot.

The platform will offer micro and small enterprises an overdraft facility of up to KSh 50,000, and a loan of up to 12 months with a limit of KSh 200,000. The initiative targets five million sign-ups, and two million users in the first year. How it plans to do this is a frightening demonstration of the workings of state capture in the Uhuru Kenyatta era.

Kenya’s annual milk production is estimated at 3.5 billion litres, of which 80 percent is consumed or traded informally. Put another way, only 20 percent, about 600,000 litres, is handled by processors. If these regulations were only to double the processors intake to 50 percent, we are talking of growing Brookside’s turnover and gross margin to KSh100 billion and KSh 67 billion respectively.

But this column is not about the milk, at least not literally – even if the milking metaphor is quite apt. This story is about an even more audacious scheme in the Kenyatta empire’s “expansion drive”, the most egregious case of policy and regulatory capture I have encountered, and I have been round this block a few times. What follows is based on an internal document entitled ‘Restoring Credit Access to Micro and Small Sized Businesses’ shared by whistleblowers in institutions that have been corralled into the scheme by force.

The Huduma Number connection starts with an innocuous statement in a slide presentation titled “How Customers will Qualify” that ends with a bullet point stating that “customers that don’t immediately qualify can opt into a credit access plan”.

The name of the scheme is Wezesha (‘enable’). It is a proposed mobile phone lending platform described as a “collaborative initiative to bridge the access to credit by micro and small enterprises”. It will be managed by five banks, namely NIC Bank, Diamond Trust Bank (DTB), the Kenya Commercial Bank and Cooperative Bank under the leadership of the Kenyatta Family-owned Commercial Bank of Africa. CBA is in the process of acquiring NIC, alongside the smaller microfinance oriented Jamii Bora bank. KCB, Kenya’s largest bank by asset base, and Cooperative Bank, are quasi-public banks, while Diamond Trust Bank is associated with the Aga Khan. The platform will offer micro and small enterprises an overdraft facility of up to KSh 50,000, and a loan of up to 12 months with a limit of KSh 200,000. The initiative targets five million sign-ups, and two million users in the first year. How it plans to do this is a frightening demonstration of the workings of state capture in the Uhuru Kenyatta era.

When it was launched we were threatened that Kenyans who did not register would be denied public services. We are compelled to ask whether this threat, and its prominence in this scheme are related. Are the president’s commercial interests the force behind the Huduma Number?

First observation: the contentious Huduma Number initiative features prominently in the scheme. The Huduma Number connection starts with an innocuous statement in a slide (the documentation is a powerpoint presentation) titled “How Customers will Qualify” that ends with a bullet point stating that “customers that don’t immediately qualify can opt into a credit access plan (consumer education).” How so, is elaborated in another slide titled “Customer Education At Huduma Universal Service Kiosk” complete with the Huduma Kenya logo. Further along, in another slide titled “Functional Schema” a bullet point: “Distribution: An integrated network of GoK Huduma Centres, Bank Branches and agent locations to ‘onboard’ customers and offer information and advice to capital and business opportunities.”

When Huduma Number was launched we were threatened that Kenyans who did not register would be denied public services. We are compelled to ask whether this threat, and its prominence in this scheme are related. Are the president’s commercial interests the force behind the Huduma Number?

But perhaps the question is already answered in another slide titled “Phase 2 Support for Scalability”: New Huduma ID to be integrated once it is ready. This scheme could be used as a registration incentive.”

The funding partners propose that the GoK establishes a credit risk guarantee fund, that is administered by the Central Bank of Kenya, to provide mezzanine credit risk cover for any credit losses above three percent, up to the prevailing NPL rate.

Also to be leveraged for scaling: “Moratorium from KRA Pin and Tax payment”. This statement requires some thought. What would give a private business scheme the audacity to propose a tax compliance waiver as a tactic to attract customers?

But the crux, is this:

“The funding partners propose that the GoK establishes a credit risk guarantee fund, that is administered by the Central Bank of Kenya, to provide mezzanine credit risk cover for any credit losses above three percent, up to the prevailing NPL rate.”

Some background is necessary. The cost of bank credit is arrived at as follows:

Cost of funds + Target income + Loan loss provision (NPLs)

Cost of funds is the interest the bank pays on deposits. Target income is the bank’s calculated profit margin that will translate into an acceptable return on investment. Loan loss provision is

the income that the bank sets aside to compensate for loans that are not repaid. Banks are required by the regulator to “provide” from their income equivalent to non-performing loans (NPLs).

Based on this costing, the Scheme’s promoters seem to have arrived at the conclusion that the initiative is not commercially viable. They appear to have determined this in the following way: The lending rate is set at nine percent arrived at by setting cost of funds, target income and a target loan loss provision at three percent each. Next, the Scheme factors in the Kenyan banking sector’s actual NPL rate, which was 11.6 percent at the close of 2018. They then calculate that at 9 percent the initiative would have run at loss of 5.6 percent (9 – 3-11.6 = -5.6).

This is how the case for a public credit guarantee scheme is made. In the computation provided, the public credit risk guarantee would cover the difference between banks’ target and the industry NPL. In the documents that we have seen, an example is provided in which the target NPL is set at three percent as above; the industry NPL at 10 percent and the actual NPL of the lending scheme is set at 12 percent. In this case, the public would pay seven percent (10% – 3%) and the banks would absorb five percent, the target income is projected at three percent, and the additional two percent that is over and above the industry NPL of 10 percent.

Let me illustrate. If for argument’s sake, the scheme lent out KSh 100 billion at nine percent, a 12 percent NPL reduces the performing portfolio to KSh 88 billion, which translates to an interest income of KSh 7.92 billion. A 12 percent loan loss provision (KSh 12 billion) changes that to an interest income loss of KSh 4 billion. But above three percent NPL the public credit insurance kicks in and injects KSh 7 billion, making a total revenue of KSh 14.92 billion (less KSh 12 billion loan loss provision) leaving a net revenue of Sh. 2.92 billion. This translates to a loss of KSh 0.8 million, given that the cost of funds is KSh 3 billion.

What are we missing?

This is a very strange way of pricing a product. The conventional way is to do one of two things: (a) cost the product and compare it with the market price; or (b) take the market price and work backwards to see whether you can beat the price. Sometimes, the product may cost more than the completion, then it becomes a question of whether it can be sold at a premium, like for example, an iPhone, or a Ferrari.

Either way, one arrives at a break-even interest rate of 17.6 percent by adding up the cost of funds (three percent), the targeted income (three percent) and industry NPL rate (11.6 percent).

The next question is whether they would get sufficient uptake of the product at say 18-20 percent. The answer is an unequivocal yes.

For mobile money loans, the money is not in the interest rate but in the transaction fees.

So, why would these banks price the loans to SMEs, the riskiest segment of the market, at 9 percent (about the same as Treasury Bill rate), which for all intents and purpose is the risk-free rate?

For mobile money loans, the money is not in the interest income charged on loans but in the transaction fees. In fact, most products do not charge interest at all. The pricing structure varies widely. To get the actual cost of the loans, we need to calculate a standardized rate known as the Annual Percentage Rate (APR). The APR is obtained by adding up all the cost of the loan and converting them to the equivalent annual interest rate, for example a three month, KSh 10,000 loan with a 5% fee and interest of 2.5% per month costs 1250 (Sh. 500 fee plus Sh. 750 interest) which annualizes to KSh 5000 (Sh. 1250 x 4), which is an APR of 50%. KCB charges a 2.5 percent transaction fee and interest rate of 1.16 percent a month for loans ranging from one to six months which works out to APR of 19% to 44% for the six and one month loans respectively. In general, the shorter the term, the more expensive. CBA charges a 7.5 percent fee for a one-month Mshwari loan. This is an APR of 90 percent. The recently launched Fuliza overdraft tariff range from 5/- a day for amounts below KSh 500 to KSh 30 per day for amounts above KSh. 2500. A Sh.10,000 Fuliza overdraft at KSh 30 per day translates to an APR of 110 percent.

When fees are factored in, the case for public credit insurance collapses like a house of cards.

Let’s go back to the monetary illustration. Assume the scheme achieves its borrowing target of two million customers. Our portfolio of KSh100 billion works out to an average individual loan of KSh. 20,000. Further, assume they churn the funds six times a year, that is, each of the customer borrows and repays a loan every two months on average. A five percent transaction fee translates to an income of KSh12 billion a year, and a total income of KSh19.92 billion — well above the 18 percent required for the scheme to meet its profit target.

So what is going on here? First, Wezesha is simply a scheme to fleece the public. In today’s financial lingo, the Scheme is fully “de-risked”…par for the course in “public-private partnership” (PPP) business, where the profits are privatized, but the losses are socialized (i.e. borne by the public). The second, is to see Wezesha as a strategy to finance undercutting the competition by pricing below cost at entry, with the intention of charging monopoly prices once the competition is driven out of business.

The nine percent interest is a bait. Its purpose is to make the case for the proposed government credit insurance scheme by purporting to offer SMEs affordable credit.

So what is going on here? There are two ways to look at it. First, Wezesha is simply a scheme to fleece the public. In today’s financial lingo, the Scheme is fully “de-risked.” This is par for the course in “public-private partnership” (PPP) ventures, where the profits are privatized, but the losses are socialized (i.e. borne by the public).

The second, is to see Wezesha as a strategy to finance undercutting the competition by pricing below cost at entry, with the intention of charging monopoly prices once the competition is driven out of business. In competition economics, we call this predatory pricing. It is illegal under competition law. In this case, the public insurance serves both as a financial cushion as well as insurance from regulatory scrutiny.

The CBA already controls consumer credit data on account of its Safaricom partnership. This Scheme is designed to make the CBA the gatekeeper for the entire banking and financial services to micro-and small-enterprises.

As students of economics and finance know from the concept of information asymmetry, the most important asset in credit markets is information about customers’ creditworthiness. On the strategy for “scaling up” the documents refer to “integration to other financial institutions and service providers.” The intention is clear. First, use the government machinery and public money to drive customer acquisition. The CBA already controls consumer credit data on account of its Safaricom partnership. This Scheme is designed to make the CBA the gatekeeper for the entire banking and financial services to micro-and small enterprises, and I quote: “CBA Digital shall play a lead arranger role to develop and operate the credit risk management model for the full credit lifecycle.”

Even if there was an economic rationale for a credit insurance scheme of this kind, no government in its right mind would confer such a market advantage to some players. It is instructive that, in what looks like a case of the tail wagging the dog, KCB the crown jewel of public banks has been brought into the scheme. We should not be surprised if down the road, it turns out to be an acquisition target.

Uhuru Kenyatta’s sole accomplishment after extricating himself from the ICC may turn out to be framing the corruption issue exclusively as plunder of the budget, perhaps even deliberately giving his associates leeway in that theatre—recall “mnataka nifanye nini” (what do you want me to do)— as he provides cover for the Family to do the more serious boardroom stuff. Plunder of the budget ends once the thieves leave office. Wholesale enclosure of large chunks of the economy will keep the dynasty in the black long after he has left office.

Welcome to the Kenyatta Republic Inc.

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David Ndii is a leading Kenyan economist and public intellectual.

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Education in Rwanda: A Long Walk to the Knowledge Economy

If Rwanda is to attain its stated ambition to become of a middle-income country by 2035 driven by the knowledge economy, then it must inject significant investments in the education and related sectors.

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Education in Rwanda: A Long Walk to the Knowledge Economy
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Rwanda has shown commitment to bring improvements to its education sector. The development of Human capital that involves the enhancement of the education and health sectors was one of the main pillars of Rwanda’s development programme launched in 2000 to transform the country into a middle income state driven by the knowledge economy by 2020. Many developed countries joined in to financially support Rwanda to fulfil its development ambitions.

But while Rwanda did not meet its target to transform into a middle-income state by 2020, it has nevertheless made progress in the education sector that should be recognised. The country has now near-universal access to primary education with net enrolment rates of 98 per cent. There are also roughly equal numbers of boys and girls in pre-primary, primary and secondary schools in Rwanda. Compared to other sub-Saharan African countries, Rwanda has made great improvements in the education sector based on the gains made in primary school gross enrolment, out-of-school and retention rates and considering that the country came out of a genocidal civil war in the 1990s. Those of us living and travelling across the country can also see that the government of Rwanda has built more schools across the country to address congestion in classrooms.

However, education in Rwanda is faced with serious challenges which, if not addressed, the country will not attain its ambition to become a middle-income by 2035 and a high-income by 2050. The World Bank’s comparison with middle- and high-income countries, to whose ranks Rwanda aspires to join, shows that Rwanda lags far behind in primary and lower secondary school completion levels.

The gains made in education are not equally distributed across Rwanda. There are, for instance, wide disparities in lower secondary education by income and urban–rural residence. Whereas lower secondary school gross enrolment ratio level is 82 per cent in urban areas, it is only 44 per cent in rural areas. Moreover, transition rates between primary and lower secondary education are 53 per cent in urban areas, and 33 per cent in rural areas. School completion is 52 per cent among the richest quintile while it is 26 per cent among the poorest. Any future development strategy is unlikely to succeed if it does not provide basic equality of opportunity for all in Rwanda.

The standard of education in Rwanda is another major challenge. At the end of Grade 3, 85 per cent of Rwandan students were rated “below comprehension” in a recent reading test, and one in six could not answer any reading comprehension question. In my view, the quality of education has been partly affected by the abrupt changes in the language of instruction that have taken place without much planning since 2008.

Any future development strategy is unlikely to succeed if it does not provide basic equality of opportunity for all in Rwanda.

Learning levels in basic education remain low in Rwanda.  Children in the country can expect to complete 6.5 years of pre-primary and basic education by the age of 18 years. However, when this is adjusted for learning it translates to only about 3.8 years, implying that children in Rwanda have a learning gap of 2.7 years. This is a concern.

Education in Rwanda is also impended by high levels of malnutrition for children under 5 years. Although there have been improvements over time, malnutrition levels remain significantly high at 33 per cent. Malnutrition impedes cognitive development, educational attainment, and lifetime earnings. It also deprives the economy of quality human capital that is critical to Rwanda attaining its economic goals and sustaining its economic gains. In 2012, Rwanda lost 11.5 per cent of GDP as a result of child undernutrition.

Because of low learning levels and high levels of malnutrition in children under 5 years, Rwanda has consistently ranked below average on the World Bank’s Human Capital index since 2018, the year the index was first published. HCI measures which countries are best at mobilising the economic and professional potential of their citizens.

If Rwanda is to develop the competent workforce needed to transform the country into a knowledge-based economy and bring it into the ranks of middle-income states, the government must put significant public spending in basic education. This has not been the case over the past decades. According to the World Bank, Rwanda’s public spending on primary education has been significantly lower than the average for sub-Saharan African countries with similar coverage of primary school level as Rwanda. This low spending on primary education has translated into relatively modest pay for teachers and low investment in their professional development which in turn affects the provision of quality education in Rwanda. The government recently increased teachers’ salary but the increment is being eroded by, among other things, food price inflation in Rwanda.

Malnutrition impedes cognitive development, educational attainment, and lifetime earnings.

Going forward, Rwanda’s spending on education needs to be increased and allocated to improving standards. Considering that the underlying cause of the high rate of malnourishment in children is food insecurity, the government needs to spend more on the agriculture sector. This sector employs 70 per cent of the labour force but has received only 10 per cent of total public investment. Public investment in Rwanda has in the past gone to the development of the Meetings, Incentives, Conferences and Exhibitions sector rather than towards addressing pressing scarcities. This approach must be reviewed.

Increasing public expenditure in education and connected sectors should also be combined with strengthening accountability in the government institutions responsible for promoting the quality of education in basic schools and in promoting food security and livelihoods in Rwanda. This is because not a year goes by without the office of the Rwanda auditor general reporting dire inefficiencies in these institutions.

Strengthening institutional accountability can be achieved if the country adapts its consensual democracy by opening up the political space to dissenting voices. Doing so would surely enhance the effectiveness of checks and balances across institutions in Rwanda, including in the education sector, and would enable the country to efficiently reach its development targets.

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No Imperialist Peoples, Only Imperialist States

Adam Mayer praises a new collection, Liberated Texts, which includes rediscovered books on Africa’s socialist intellectual history and political economy, looking at the startling, and frequently long ignored work of Walter Rodney, Karim Hirji, Issa Shivji, Dani Wadada Nabudere, A. M. Babu and Makhan Singh.

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No Imperialist Peoples, Only Imperialist States
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Liberated Texts is a magnificent, essential, exciting tome that feels like a bombshell. This incredibly rich collection is a selection that is deep, wide, as well as entertaining. The book focuses on twenty-one volumes from the previous one hundred years, with a geographical range from the UK, the US, Vietnam, Korea, the Peoples Republic of China, the Middle East, Ireland, Malaysia, Africa (especially East Africa), Europe, Latin America, and the former Soviet Union, focusing on books that are without exception, foundational.

The collection is nothing less than a truth pill: in composite form, the volume corrects world history that Howard Zinn’s The People’s History of the United States offered for the sterile, historical curriculum on domestic (US) history. The volume consists of relatively short reviews (written by a wide collection of young and old academics and activists from every corner of the globe) but together they reflect such a unified vision that I would recommend Liberated Texts as compulsory reading for undergraduate students (as well as graduates!) Although the text is a broad canvas it speaks to our age (despite some of the reviewed book having been written in the 1920s).

Each review is by default, a buried tresure. The writer of this very review is a middle-aged Hungarian, which means that some of the works and authors discussed were more familiar to me than they would be to others. For example, Anton Makarenko’s name was, when the author grew up in the People’s Republic of Hungary, a household word. Makarenko’s continued relevance for South America and the oppressed everywhere, as well as his rootedness in the revolutionary transformations of the Soviet experiment, are dealt with here marvellosly by Alex Turrall (p. 289). In loving detail Turrall also  discusses his hero the pedagogue Sukhomlinsky’s love for Stalinist reforms of Soviet education (p. 334).

There is one locus, and one locus only, where death is given reign, perhaps even celebrated: in a Palestinian case (p. 133) the revolutionary horizons are firmly focused on the past, not on any kind of future. The entire problematic of Israeli society’s recent ultra right-wing turn (a terrible outcome from the left’s point of view) is altogther missing here. Yet it is difficult to fault the authors or editors with this (after all, they painstakingly included an exemplary anti-Nazi Palestinian fighter in the text, p. 152) but it might be in order to challenge a fascination with martyrdom as a revolutionary option on the radical left.

In every other aspect, Liberated Texts enlightens without embarrassment, and affirms life itself. Imperialism is taken on in the form of unresolved murders of Chinese researchers in the United States as a focus (p. 307), and in uncovering the diabolical machinations of the peer-review system – racist, classist, prestige-driven as it is (p. 305).

The bravery of this collection is such that we find few authors within academia’s tenure track: authors are either emeriti, tenured, very young academics, or those dedicated to political work: actual grassroots organizers, comrades at high schools, or as language teachers. This has a very beneficial effect on the edited volume as an enterprise at the forefront of knowledge, indeed of creating new knowledge. Career considerations are absent entirely from this volume, in which thankfully even the whiff of mainstream liberalism is anathema.

I can say with certainty regarding the collection’s Africanist chapters that certain specialists globally, on African radical intellectual history, have been included: Leo Zeilig, Zeyad el-Nabolsy, Paul O’Connell, Noosim Naimasiah and Corinna Mullin all shed light on East African (as well as Caribbean) socialist intellectual history in ways that clear new paths in a sub-discipline that is underfunded, purposely confined to obscurity, and which lacks standard go-to syntheses especially in the English language (Hakim Adi’s celebrated history on pan-Africanism and communism stops with the 1950s, and other works are in the making).

Walter Rodney, Karim Hirji, Issa Shivji, Dani Wadada Nabudere, A. M. Babu, Makhan Singh are the central authors dealt with here. Rodney is enjoying a magnificent and much deserved renaissance (but this collection deals with a lost collection of Rodney’s 1978 Hamburg lectures by Zeilig!) Nabolsy shows us how Nyerere’s Marxist opposition experienced Ujamaa, and Tanzanian ’socialism’. Nabudere – a quintessential organic intellectual as much as Rodney –  is encountered in praxis as well as through his thought and academic achievements in a chapter by Corinna Mullin. Nabudere emerges as a towering figure whose renaissance might be in the making right at this juncture. Singh makes us face the real essence of British imperialism. Nabudere, Babu and even Hirji’s achievements in analysing imperialism and its political economy are all celebrated in the collection.

Where Shivji focuses on empire in its less violent aspect (notably NGOs and human rights discourse) powerfully described by Paul O’Connell, Naimasiah reminds us that violence had been as constitutive to Britain’s empire, as it has been to the Unites States (in Vietnam or in Korea). An fascinating chapter in the collection is provided by Marion Ettinger’s review of Richard Boyle’s Mutiny in Vietnam, an account based entirely on journalism, indeed impromptu testimony, of mutinous US soldiers tired of fighting for Vietnam’s landlord class.

Many readers of this anthology will identify with those veterans (since the collection appears in the English language) perhaps more than with East Asia’s magnificent, conscious fighters also written about in the book. Even in armies of the imperialist core, humanity shines through. Simply put, there are no imperialist peoples, only imperialist states.

Zeilig’s nuanced take on this important matter is revealed in Rodney’s rediscovered lectures. Also, the subtlety of class analysis in relation to workers versus peasants, and the bureacratic bourgeoisie profiting from this constellation (p. 219) brings to mind the contradiction that had arguably brought down Thomas Sankara, Burkina Faso’s anti-imperialist president who nevertheless found himself opposing working class demands. Rodney’s politics in Guyana invited the same fate as Sankara, as we know.

Nabolsy’s review on Hirji’s The Travails of a Tanzanian Teacher touches on very interesting issues of Rodney’s role especially in the context of Ujamaa and Nyerere’s idiosyncratic version of African socialism. Nabolsy appreciates Nyerere efforts but analyses his politics with great candour: Ujamaa provided national unification, but failed to undermine Tanzania’s dependency in any real sense. The sad realization of the failure of Tanzania’s experience startles the reader with its implications for the history of African socialism.

On an emotional and personal level, I remain most endeared by the Soviet authors celebrated in this text. So Makarenko and Sukhomlinsky are both Soviet success stories and they demonstrate that this combination of words in no oxymoron, and neither is it necessarily, revisionist mumbo-jumbo. Their artificial removal from their historical context (which had happened many times over in Makarenko’s case, and in one particular account when it comes to Sukhomlinsky) are fought against by the author with Leninist gusto.

Sukhomlinsky had not fought against a supposedly Stalinist education reform: he built it, and it became one of the most important achievements of the country by the 1960s due partly to his efforts. The former educational pioneer did not harm children: he gave them purpose, responsibility, self-respect, and self-esteem. The implication of Sukhomlinsky and Makarenko is that true freedom constructs its own order, and that freedom ultimately thrives on responsibility, and revolutionary freedom.

As this collection is subtitled Volume One, it is my hope and expectation that this shall be the beginning of a series of books, dealing with other foundational texts, and even become a revolutionary alternative to The London Review of Books and the New York Review of Books, both of which still demonstrate how much readers crave review collections. Volumes like Liberated Texts might be the very future of book review magazines in changed form. A luta continua!

This article was first published by ROAPE.

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We Must Democratize the Economy

In the UK, prices for basic goods are soaring while corporations rake in ever-bigger profits. The solution, Jeremy Corbyn argues, is to bring basic resources like energy, water, railways, and the postal service into democratic public ownership.

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Jeremy Corbyn: We Must Democratize the Economy
Photo: Chatham House, London
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On Thursday, December 15, the Royal College of Nursing went on strike for the first time in their 106-year history. Understaffed, underpaid, and overworked, tens of thousands of National Health Service (NHS) nurses walked out after being denied decent, livable pay rises. Hailed as heroes one year, forced to use food banks the next, nurses’ wages have fallen more than £3,000 in real terms since 2010; three in four now say they work overtime to meet rising energy bills.

People will remember 2022 as the year that the Conservative Party plunged this country into political turmoil. However, behind the melodrama is a cost-of-living crisis that has pushed desperate people into destitution and the so-called middle classes to the brink. We should remember 2022 as the year in which relative child poverty reached its highest levels since 2007 and real wage growth reached its lowest levels in half a century. (Average earnings have shrunk by £80 a month and a staggering £180 a month for public sector workers.) These are the real scandals.

For some MPs, this was the year they kick-started their reality TV careers. For others, this was the year they told their children they couldn’t afford any Christmas presents. For energy companies, it was the year they laughed all the way to the bank; in the same amount of time it took for Rishi Sunak to both lose and then win a leadership contest, Shell returned £8.2 billion in profit. SSE, a multinational energy company headquartered in Scotland, saw their profits triple in just one year. Profits across the world’s seven biggest oil firms rose to almost £150 billion.

Tackling the cost-of-living crisis means offering an alternative to our existing economic model — a model that empowers unaccountable companies to profit off the misery of consumers and the destruction of our earth. And that means defending a value, a doctrine, and a tradition that unites us all: democracy.

Labour recently announced “the biggest ever transfer of power from Westminster to the British people.” I welcomed the renewal of many of the policies from the manifesto in 2019: abolishing the House of Lords and handing powers to devolved governments, local authorities, and mayors. These plans should work hand in hand, to ensure any second chamber reflects the geographical diversity of the country. If implemented, this would decentralize a Whitehall-centric model of governance that wastes so much of this country’s regional talent, energy, and creativity.

However, devolution, decentralization, and democracy are not just matters for the constitution. They should characterize our economy too. Regional governments are demanding greater powers for the same reason an unelected second chamber is patently arcane: we want a say over the things that affect our everyday lives. This, surely, includes the way in which our basic resources are produced and distributed.

From energy to water and from rail to mail, a small number of companies monopolize the production of basic resources to the detriment of the workers they exploit and the customers they fleece. We rely on these services, and workers keep them running, but it is remote chief executive officers and unaccountable shareholders who decide how they are run and profit off their provision. Would it not make more sense for workers and consumers to decide how to run the services they provide and consume?

As prices and profits soar, it’s time to put basic resources like energy, water, rail, and mail back where they belong: in public hands. Crucially, this mold of public ownership would not be a return to 1940s-style patronage-appointed boards but a restoration of civic accountability. Water, for example, should be a regional entity controlled by consumers, workers, and local authorities, and work closely with environmental agencies on water conservation, sewage discharges, the preservation of coastlines, and the protection of our natural world. This democratic body would be answerable to the public, and the public alone, rather than to the dividends of distant hedge funds.

Bringing energy, water, rail, and mail into democratic public ownership is about giving local people agency over the resources they use. It’s about making sure these resources are sustainably produced and universally distributed in the interests of workers, communities, and the planet.

Beyond key utilities, a whole host of services and resources require investment, investment that local communities should control. That’s why, in 2019, we pledged to establish regional investment banks across the country, run by local stakeholders who can decide — collectively — how best to direct public investment. Those seeking this investment would not make their case with reference to how much profit they could make in private but how much they could benefit the public as a whole.

To democratize our economy, we need to democratize workplaces too. We can end workplace hierarchies and wage inequalities by giving workers the right to decide, together, how their team operates and how their pay structures are organized. If we want to kick-start a mass transfer of power, we need to redistribute wealth from those who hoard it to those who create it.

Local people know the issues facing them, and they know how to meet them better than anyone else. If we want to practice what we preach, then the same principles of democracy, devolution, and decentralization must apply to our own parties as well. Local party members, not party leaders, should choose their candidates, create policy, and decide what their movement stands for.

Only a democratic party can provide the necessary space for creative and transformative solutions to the crises facing us all. In a world where the division between rich and poor is greater than ever before, our aim should be to unite the country around a more hopeful alternative — an alternative that recognizes how we all rely on each other to survive and thrive.

This alternative is not some abstract ideal to be imagined. It is an alternative that workers are fighting for on the picket line. Even before the nurses went on strike, 2022 was a record-breaking year for industrial action. Striking workers are not just fighting for pay, essential as these demands are. They are fighting for a society without poverty, hunger, and inequality. They are fighting for a future that puts the interests of the community ahead of the greed of energy companies. They are fighting for us all.

Their collective struggle teaches us that democracy exists — it thrives — outside of Westminster. The government is trying its best to turn dedicated postal workers and railway workers into enemies of the general public — a general public that apparently also excludes university staff, bus drivers, barristers, baggage handlers, civil servants, ambulance drivers, firefighters, and charity workers. As the enormous scale of industrial action shows, striking workers are the general public. The year 2022 will go down in history, not as the year the Tories took the public for fools, but as the year the public fought back. United in their thousands, they are sending a clear message: this is what democracy looks like.

This article was first published by Progressive International

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