Mainstream neoclassical economics, which has been the dominant economic thinking for over a century, can no longer be an adequate mental model to interpret and shape the socio-economics of a new reality. It is evident throughout the world that economics has become a dynamic and misunderstood subject matter and this is simply because we are using old thinking tools developed in totally different eras to try and understand new phenomena and new behaviours.
Every generation can only progress by creating the new in order to move away from the old which no longer serves their emerging and evolving needs. That is called progress! We have to fundamentally reconsider our old traditions, beliefs and ingrained habits and change them, radically at times, in order to create new results. A revolution in how we think and how we shape the inter-relationships within our society, be it in politics or economics, is not necessarily a bad thing, but indicates a progressive society which is continually questioning its current reality in order to create better results and a future they imagine.
Rwanda’s Gross Domestic Product, which reflects the totality of the value of economic activity in the country, comprises mainly of primary production, these being agriculture and mining. The fact that we must accept is that no country has ever created sustainable wealth through the production of primary goods alone. Without a local industrial base which adds value locally to those primary products, we will continue to export potential wealth creation opportunities, jobs and incomes to more developed economies. That colonial model must be fully eradicated if we are to achieve inclusive economic growth and development.
We, therefore, have to focus on local manufacturing of goods before we export them and also internalise the manufacture of as many imported finished goods as possible. We must, as far as possible, consume what we produce and produce what we consume. This is simply because local value addition spurs technological advancement and innovation by entrepreneurs, while creating high end skilled jobs resulting in more wealth and incomes for our citizens. In addition, the value of down-stream linkages created by localised manufacturing is exponential. These facts are now fully appreciated by most African leaders and what we now need is their aggressive and rapid implementation.
A more aggressive re-industrialisation strategy is therefore necessary. Such a strategy must be primarily driven by the private sector entrepreneurship and innovation, while government should provide the necessary policy environment to facilitate the emergence of the necessary industrial infrastructure development. This transformation, in my view, must be underpinned by new economic thinking which rejects the old colonial architecture of African economies and neo-economic classical theory. We must appreciate that new emerging economies, both in the developed and developing nations, have become a complex, adaptive and dynamic systems, where it is inherently difficult to prescribe or predict outcomes and responses to particular economic policy changes. They are characterised by complex unpredictable interactions amongst several networks (be they formal or informal, local or foreign) and these interactions are dynamic and are continuously evolving with their own "emerging phenomena” to shape the macro economy. The digital age makes these interactions faster and more complex.
According to "complexity economics” well covered in a publication by Institute for Public Policy Research (IPPR) titled; "A Complex New World: Translating new economic thinking into public policy” - in reality, the new economy is a complex ecology rather than a complicated machine whose parts can be analysed and understood.
I quote; "Mainstream neoclassical economics, which has been the dominant economic thinking for over a century, is no longer an adequate mental tool to interpret and shape the socio economics of a new reality. This conventional neo-classical theory does not reflect realities because in the real world, economies are not static and geared towards equilibrium; they are dynamic and in constant flux. This dynamism is endogenous; it originates within the system, not from exogenous shocks. Consumer preferences are not formed by individuals acting solely on their own, but are the result of a complex process that includes observing and interacting with other consumers. Economic agents do not have a fixed set of preferences based on rational assessment; they are subject to whims and to mimicking the behaviour of other agents. As a result, the nature of the economic system transforms over time. In reality, the economy is a complex ecology rather than a complicated machine. It does not respond in predictable ways. It is path-dependent, with each phase building on the previous one. This is a more realistic understanding of the way economic systems develop and change especially in this information age.”
Complexity economics, therefore, challenges fundamental orthodox assumptions and seeks to move beyond market transactions, static equilibrium analysis and the perfectly rational, self-interested individuals. If we accept this thinking, it surely exposes why some seemingly logical economic policies are failing to create intended outcomes. This applies to both fiscal and monetary policies.
If we are to create new relevant inclusive economies in Africa, and this of course includes Rwanda, it requires a new paradigm of thinking that seeks to think deeper and try to understand "complex socio-ecosystems” because the thinking tools we are currently using are inadequate in order to unlock our full potential. It is our duty to continuously think outside the current paradigm and reconsider the mental boundaries set upon us by economic theories of the past which have become quite ineffective in meeting the needs of many. As Albert Einstein once said "the problems we face can never be solved at the same level of thinking we were at when we created them.”
Vince Musewe is an economist. You can contact him directly on vtmusewe@gmail.com