Government failure is the public sector analogy to market failure and occurs when a government intervention causes a more inefficient allocation of goods and resources than would occur without that intervention. Likewise, the government’s failure to intervene in a market failure that would result in socially preferable mix of output is referred to as passive government failure (Weimer and Vining, 2004). The failure is an outcome of policies enacted to regulate trade which create systemic inefficiencies and economic cost that adversely affect a product‘s manufacture and sales.
This arises when government has created some inefficiency because it would not have solved a given problem or a set of problems more efficiently. The government supply side failures largely result from principal/agent problems. Market failure - occurs when the supply of a good or service insufficient to meet a demand. A market failure result when prices cannot achieve equilibrium because of some distortions for example, the limits on specific goods and services.
In other words, government regulations implemented to promote social wellbeing inevitably result in a degree of market failure. Structural Adjustment Programme are economic policies which countries must follow in order to qualify for new World Bank (WB) and International Monetary Fund (IMF) loans and help them make debts repayments on the older dept owed to commercial banks, governments and World Bank, (Whirled Bank Group, 2003). THE CONDITION OF THE COUNTRY BEFORE STRUCTURAL ADJUSTMENT After independence in 1961, the new government adopted the colonial style of economic structure.
Between 1960 and 1962, for example agriculture contributed more than 50% to gross national product (GNP), and sisal, coffee, cotton and tea contributed 60% to the total foreign exchange earnings (Taube 1992). Tanzania neglected not only to satisfy its own national food requirements, but also to diversify its export products and promote light manufacturing. Politicians were soon overtaken by the reality of severe deficiencies in the supply of food products, energy, housing, manufactured goods, health and educational services, as well as intermediate inputs and implement for the agricultural sector.
Between 1961and 1966 Tanzania economy operated primarily under free market conditions and the government adopted the World Bank’s transformation approach to agricultural development as a component of its first five year plan (Wenzel and Wiedemann 1989). In 1963 Tanzania implemented the Agriculture Product Board Act, which was the government’s marketing board for scheduled crops. This board managed maize, wheat, rice, cashew nuts and oil seeds through market purchase, price regulation, and regulation of storage, transport and processing (Bryceson 1993).
DURING ARUSHA DECLARATION In 1967, the ruling party (TANU) which nowadays is Chama Cha Mapinduzi (CCM) passed the first national economic declaration establishing Tanzania’s era of economic socialism. This was the Arusha Declaration. This clearly meant to address the deficiencies in Tanzania’s economic development, but it explicitly enclosed socialism and a planned economy, which the country’s new leaders thought appropriate at the time. Ujamaa (familyhood and relationship) became the expression for Tanzanian‘s social economic system and a synonym for Tanzania socialism.
Through this self reliance approach, Tanzania forced its own withdrawal from international market. GOVERNMENT FAILURE Although Tanzania experienced reasonable macroeconomic performance until the mid – 1970s, unfavorable external conditions wiped out the previous economic achievements and led to the crisis period of 1980 - 1985 (Ndulu 1994). The justification for nationalization of private firms and extensive involvement of the state in productive activities was the ability of the state to control negative externalities, exploit economies of scale and operate firms at officially optimal level, the outcome proved otherwise for Tanzania.
The government failure occurred in the following ways; The state owned cooperation turned out to be inefficient in almost all areas of their operations. For example many supply companies operated below standard such as National Milling Cooperation which was supplying food stuffs like maize, packed maize flour, rice and wheat causing higher demand in urban areas. Another company was Regional Trading Company (RTC) for supplying commodities like sugar, soaps, wine from Dodoma, and these caused shortages of the commodities.
Due to lack of fund from central government health services, water, education (especially primary schools) remained a big problem in both urban and rural areas. The government operation in providing these social services was highly contributed by among other things inadequate foreign exchange as the country relied much on agricultural products which did not competed strongly with the same crops from other countries in the international market such as coffee from Brazil, cotton from Egypt and India. There was also the Tanzania - Uganda war of 1978 – 1979 as much as national earnings was directed to the war.
There was extreme weather conditions (drought or too much rainfall) leading to falling of local production in key food crops and high domestic inflation. These conditions contributed to severe poverty to most of the people since they depended on agriculture for their survivor. R. E. Stren adds that Tanzania faced a severe balance of payments originally caused by the rising prices of imported oil. The rise of oil price resulted to the rise of prices of products as well as provision of social and economic services.
Due to this the majority could not afford to access these services. Young (2003) argues that the government had been adamant that the buses she owned retain their monopoly status, but the desperate economic situation and the existence of informal sources of transport forced the government to legalized the “daladala” in 1986. The owners of trucks and pickups were allowed to carry passengers for a fee if they obtain a contract from the public transport authority and met various safety requirements.
These situations led to Tanzania try her own economic reforms in early 1980s. These include Nation Economic Survival Program (NESP) in 1981 -1982, Structural Adjustment Program (SAP) in 1983 – 1985. Due to these homegrown reforms, Tanzania adopted a series of donor supported reform programs starting in 1986. The first was Economic Recovery Program (ERPI), followed by the ERPII in 1989 - 1992. Despite all these efforts by 1980s Tanzania was the world’s second poorest country in Gross Domestic
Product (GDP). It is these economic crises and poor services delivery which forced most of sub-Saharan African countries to implement the Structural Adjustment Program (SAP) as a precondition to aids and loans from the International Monetary Fund (IMF), the World Bank (WB) and other donor agencies. In order to solve the persistent severe economic crisis which has been confronting Tanzania since the late 1970s, Tanzania signed an agreement with WB and IMF in 1986 to adopt SAP. SAP WITH MARKET FAILURE
Structural adjustment program by World Bank and International Monetary Fund gave a new limited role for governments. No longer should the government supply services itself, instead the ultimate goal would be for the central government to serve in the role mainly educator, promoter and regulator and communities in league with the private sector in that of provider. Structural adjustment program failed also in many countries including Tanzania because many stakeholders (countries) had little or no participation in making its policy.
This means, these reforms had been imposed on countries that were neither ready nor had the capacity to implement them. According to Lugalla, Structural Adjustment Programmes had the following principles which had to be adopted: There was devaluation of the local currency. That is the dollar gained more value than the Tanzanian shilling. Due to this the foreigners who bought raw materials such as cotton benefited much as their currency was high. Also the government ended up in importing manufactured goods in higher prices resulting to low profits.
The introduction of cost sharing in education and health. Before the introduction of these reforms the government used to provide these services freely, but now the people were forces to contribute. Due to this, many people could not access these services because they were not able to contribute. There was a policy of trade liberalization. This policy aimed that the government should allow free trade where the price of commodities was controlled by donor countries. There were frequent price changes which aimed at benefiting the foreigners and not the producers.
Creation for conducive environment for foreign investments. The government had to put easy, friendly and flexible conditions that were more beneficial to the investors than the country. Introduction of democratization which is understood as multipartism. The government was under one party rule but it was forced to adopt multiparty system as a condition to receive loans and grants. By 1992 Tanzania became a democratic state where different political parties such as Tanzania Labor Party (TLP), NCCR-Mageuzi, CHADEMA, Civil United Front (CUF) and others were introduced.
Although the aim of Structural Adjustment Programme was said as to improve the socio-economic problems of the country, it proved failure. Failure of the program in Africa is also basing on the fact that there’s assumption that a uniform set of principles can yield successful policies for all countries irrespective of their differences. Failure of Structural Adjustment Program in Tanzania can be seen in; Since Tanzania has been implementing social and economic reforms prescribed by SAP, social services are still a problem both in quantity and quality.
The urban areas (cities and towns) has witnessed the problems multiplying rather than decreasing. People have difficulties in accessing clean water, adequate shelter, better health care etc. Let us take Dar Es Salaam as example, there’s frequent water cut which sometimes leave areas dry up to a week, electricity problem in the whole country, overflowing sewage and hospitals without medicine especially public hospitals,( Lugalla). SAP emphasized on reducing government expenditure on the unproductive sectors social development in urban areas in Tanzania.
Lack of sufficient budget has made it difficult to finance a variety of urban development projects including the provision of adequate housing. As a result seventy percent of the urban populations live in poor houses without necessities such as sanitation and adequate garbage collection. For example areas like Vingunguti and Hananasif in Dar es Salaam are composed of slum settlement without proper sewage systems. SAP has reduced the health budget significantly. The state allocation budget for health is now estimated at less than five percent of the government’s recurrent budget.
Information from the ministry of finance shows that, every Tanzanian is currently spending five US Dollar a year to service foreign debts but spends only two US Dollars for his or her own health. A research from Dzodzi Tsikata from university of Ghana Legon, shows that SAP has much effect on women in Africa. SAP has exacerbated gender issue in, for example work places, wage differences between men and women are growing. For example in Tanzania and Nigeria, poor and middle class women are giving up formal employment for informal sector work because it pays more.
SAP also due to its export promotion policy, has increased extractive activities such as logging and mining leading to deforestation and mining pollution and the reduction of ordinary people. These failure of SAP in Tanzania and Africa in general has posed critic from individuals and leaders like the late J. K. Nyerere the first president of Tanzania who tried to resist this program saying it was just for the Washington consensus. Another critic was made by the United Nations economic commission for Africa that SAPs are too narrow, rely mainly on fiscal and monetary instruments and have little relevance to long-term development goals.
Another failure is seen in agricultural sector following the devaluation of Tanzanian shilling. For example in 1986, the rate was 192 shillings per dollar; this situation raised the price of imported inputs. This has resulted to poverty implication to the livelihood of farmers in the country. The removal of fertilizer subsidies had the effect of raising the price of fertilizers and therefore reducing profit. The removal of subsidies on maize meal is likely to have negatively affected urban consumers.
However, under Structural Adjustment Programmes there was sound macroeconomic substantial growth in economy. The overall economic growth has been rising consistently from almost one percent in the mid 1980s to 6. 7 percent in 2004 (URT, 2005). A substantial improvement has been achieved due to adoption of various expenditure measures and processes including Public Expenditure Review (PER), Medium term Expenditure Framework (MTF) and Integrated Financial Management System (IFMS). Conclusively; Despite the setbacks, Tanzania has made tremendous progress on many fronts.
However the remaining central challenge is making growth deliver more efficiently in terms of poverty reduction. The focus on this should be on accelerating growth of agriculture and rural sector development, to engender economic opportunities in rural areas where poverty remains pervasive. Equally important is the need to sustain robust growth, a necessary element to achieving the millennium development goals. Also since the inception of economic reforms in 1986, a promising number of Tanzania’s population has benefited from gradual poverty reduction.
Understanding of the issues by wider segment of society through debates and participatory approaches engenders broad ownership of the reforms. The government should insist on the various homegrown programs to ensure sustainability and credibility to citizens as they will feel accountable and responsible for their development. BIBLIOGRAPHY: Bidyut Chakrabary and Mohit Battacharya(2003); Public Administration: A Reader; Oxford University Press. David Reed (1992); Structural adjustment and the environment.
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