Transcript The theory of competition and

The theory of competition and ‘the
developmental State’ in Africa: a case-study of
Kenya and South Africa
By
Kinyua, Paul. (LLB, LLM).
Colonial Political Economy of Kenya and RSA: Similarities
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Experienced British rule from the late nineteenth century to mid-twentieth century.
Disarticulated economic structures resulting from colonialism (exports of primary
products & minerals: imports of (British) investment capital and capital goods).
African majority populations in both countries (above 85%).
Pioneer settlers in Kenya had South African backgrounds.
Colonial administrative measures to police the racial division of labour.
Destruction of the independent African peasantry: creation of an African labouring
class.
Wartime (1939-1945) and post-war attempts to establish industrial enclaves in
Kenya and RSA by the colonial regime.
Kenya like RSA and Zimbabwe became the principal poles of accumulation, with
neighbouring territories incorporated in subsidiary roles as labour reserves.
High levels of economic inequality, (regionally and world-wide) coinciding with
racial divisions.
Implementation of market-based economic policy after independence.
Monopoly was a main feature of the colonial economy: ‘monopoly’ is defined
as any significant degree of exclusive control over some resource.
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Europeans (whites) had a monopoly of high potential land in the white highlands
(7 million acres comprising 50% of Kenya’s arable land).
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European monopoly of the most profitable crops (coffee) till the mid 1950s.
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Europeans had a monopoly of agricultural labour through ‘hut’ and ‘poll’ taxes
and Master and Servant Ordinances.
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Railway line branches located in European farming areas, apart from one site.
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Transport: railway transport carried European-produced wheat and maize at cost
while imposing high taxes on African-produced cotton.
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European control of marketing by means of a system of legal monopolies of
buying and selling.
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European monopoly on agricultural extension and veterinary services.
RESULT:
In 1960, 4,000 European farms accounted for 83% of the total agricultural exports of
the country.
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Kenya: The Structure of the colonial economy 1900-1963
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Discovery of diamonds in 1867 and gold in 1886 ushered RSA into modern
capitalist economy: influx of British (mining) capital.
Mining generated need for cheap, unskilled labour (African) and skilled European
labour (increased immigration into RSA from Europe).
RSA became a ‘Two Nation’ Society early in the 20th century: the political alliance
between the capitalist class and white labour lasted into the 1970s.
The war effort in the 1940s acted as a spur to industrialisation: by 1943
manufacturing was higher in GDP terms than mining.
Wartime and Post-war State support for industrialisation through: (i) protective
measures and tariffs; (ii) subsidies; (iii) infrastructure projects.
RSA developed relatively modern industrial capitalism marked by concentrated
ownership patterns: No development from ISI to export-oriented manufactures.
GDP growth of about 6% between 1960-69. After 1973 oil shocks GDP growth
lowered to 1.9% till 1984. Between 1984 and1990 RSA GDP growth was 1.5%.
Mergers and take-overs since the late 1970s: by 1983, seven conglomerates
controlled 80% of the shares listed in the JSE.
Political Economy of South Africa 1900-1990
Political economy of Kenya 1963-2013
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Kenyanisation and Africanisation program: Trade Licensing Act of 1967 (TLA).
TLA specified a list of goods restricted to citizen traders only.
TLA excluded non-citizens from trading in non-urban areas.
TLA amended in 1975: all goods manufactured by foreign firms in Kenya must be
distributed through Kenya National Trading Corporation (KNTC) agents.
KNTC used by Kenyan emergent bourgeoisie to penetrate wholesale and retail
trade previously the preserve of non-citizens.
Industrial and Commercial Development Corporation (ICDC) – established in
1964 as the government’s main vehicle for participation in industry through:
Support to small businesses unable to obtain commercial bank credits.
Acquisition of equity in large firms for subsequent transfer to individual Africans.
From 1966 to 1971 retail trade wholly or mainly-owned by Kenyan increased
from 55% to 89% and wholesale trade from 48% to 80% over the same period.
Competition theory: its major assumptions and ‘necessary conditions’
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Consumer welfare is maximized in conditions of perfect competition.
Under conditions of perfect competition, there is both “allocative efficiency”
(within the economy) and “productive efficiency” (within the firm).
3. Theory of general equilibrium which posits that all factors of production
receive an income equal to their marginal product.
4. Markets are to be preferred over the State (Adam Smith’s “Invisible Hand”).
Criticisms of competition theory’s postulates:
1. On the assumption of so-called perfection of markets or of information, no one
would invest because, “a profitable opportunity known to everyone is in fact
available to no one”. G.B Richardson.
2. Allocative efficiency is more likely to be a function of regulation by the State
or changes in the macroeconomic environment than to result from the normal
operations of a firm/s.
3. State-owned enterprises although not strictly competitive have their benefits
like: (i) the creation of new jobs; (ii) the defense of national interests; (iii)
reduction of regional inequalities; (iv) industrialisation.
Outlines of a workable competition law and policy
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Should prevent agreements between individual firms which have the effect
of restricting competition between them.
Needs to deal with attempts by monopolists or dominant firms to abuse
their position and prevent new competition from emerging.
Thirdly, it will need to ensure that workable competition is maintained in
oligopolistic industries.
Fourthly, it will need to monitor mergers between independent firms
whose effect will be to concentrate the market and diminish the
competitive pressures within it.
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Competition Institutions in Kenya and RSA
Analysis of the institutional mandate of the Competition
Commission of Kenya.
 Analysis of the institutional mandate of the Competition
Authority of South Africa
 Comparative review between Competition Commission of
Kenya and RSA counterpart.
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Case Studies:
1. The Cement industry in Kenya
2. The Communications industry in South Africa
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