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Chapter 2

Economic Decline and Authoritarian Rule

The economic trajectory of post-independence Tanzania is painfully familiar. A poor choice of economic policies led to economic decline, which manifested itself in growing and acute scarcities of essential goods and services. Pervasive scarcities, in turn, gave rise to the rapid spread of parallel markets, which gradually came to provide a larger and larger proportion of what ordinary Tanzanians consumed on a day-to-day basis. Tanzania developed a binary economic system. The official economy, which was largely state regulated and controlled, delivered fewer and fewer of the goods Tanzanians needed and consumed on a daily basis. The unofficial or parallel economy grew exponentially and provided an increasing proportion. The combination of the two provided fertile opportunity for rent-seeking public officials and politicians.¹ Public sector corruption became blatant, universal, and ineradicable. Using the gains they derived from corruption, many public officials became active in the parallel sector as investors and producers, owning, or co-owning, private enterprises that provided goods and services that the legal marketplace could not.

Tanzania’s evolving economic framework never corresponded very closely to President Nyerere’s social vision, and the gap between the two only grew greater as the government implemented a policy of protected industrialization. Even the most casual reading of Nyerere’s ideas on development suggests that his personal priority had to do with improving the conditions of life for Tanzania’s poorest social strata. During Nyerere’s presidency as now, this consisted principally of smallholder farmers, who were the overwhelming majority of the Tanzanian population.² As it evolved during the twenty-five years of the Nyerere presidency, however, Tanzanian economic policy assigned the highest priority to the creation of large-scale, state-owned industries. These were overwhelmingly urban, and they provided their greatest rewards to the white-collar stratum of managers and technocrats and to the owners of small businesses that provided collateral services, such as transportation and catering. The new industries also offered generous benefits to their industrial workers since, according to economic theory, the industrial wage had to be set at a high enough level to induce farmers to migrate to the industrial sector.

To capitalize those industries and to provide them with a steady flow of machinery, raw materials, and other inputs, the Tanzanian government imposed higher and higher levels of taxation and price regimentation in the agricultural sector. Throughout the Nyerere presidency, Tanzania’s rural sector was not treated as the chosen recipient of beneficent transfers from better off segments of the society but, rather, as a source of revenue that could provide capital for the industrial sector. Contrary to much of what Nyerere said and continued to believe, the economic framework that Tanzania implemented during his presidency was perverse with respect to the distribution of wealth. It featured a planned transfer of economic resources away from the poorer elements of the society, the small farmers, to the far better off inhabitants of a new industrial sector, its workers, managers, and civil servants.

If Tanzania has attracted global attention because of the social ideals of its founder-president, it has attracted equal attention for having had one of sub-Saharan Africa’s worst performing economies during the decades following independence. During the period between independence in 1961 and the beginning of economic reforms in the mid-1980s, Tanzania’s economic record was one of persistent decline. According to World Bank figures, Tanzania’s real per capita income stagnated during the forty-year period from 1960 to the turn of this century and actually fell during the 1970s and 1980s.³ Even these dismal numbers do not provide a complete picture, however. Much of the recorded growth took place in the expanding public sector and reflected the massive growth of the central government’s bureaucracy. Most Tanzanians did not benefit from this growth, and many believed that their real standard of living—measured on what they could actually obtain in the way of housing, food, clothing, and other vital amenities—fell during most of that period. The government based its calculations on the official exchange rate, which exaggerated the dollar value of its shilling-based economy. This practice concealed the extent to which living standards had fallen for the ordinary person.

By the early 1970s, it had become painfully apparent that Tanzania was experiencing a broad-gauged and largely self-induced economic decline. The theory that high taxes on agriculture could generate the resources necessary to finance industrial growth always had serious shortcomings. As a few economists had anticipated early on, the burden of heightened taxes on agricultural exports, which steadily reduced the real returns to the farmers of export crops, only resulted in increasingly lower levels of marketed production and, therefore, in a severe deterioration of the country’s ability to generate hard currency on world markets.⁴ In addition, since hard currency earnings were vitally important to finance the major costs of industrial growth, such as the imported capital goods, spare parts, and raw materials for the new industries, industrial stagnation was a collateral effect of the drop in agricultural earnings.

Shortages of goods caused by lowered earnings of foreign exchange permeated virtually every sector of the country’s economy. Scarcities of vital inputs meant that the new industrial framework was at best operating at a small fraction of its installed capacity. This, in turn, meant that the consumer goods these industries produced, ranging from relatively nonessential items, such as beer, soft drinks, and cigarettes, to important goods such as clothing, automobile tires, and construction materials, were perpetually in short supply. As the foreign exchange shortage deepened, the country’s public services deteriorated as well. Tanzania was unable to afford the spare parts and fuel supplies required to operate its fleet of publicly operated buses and trash vehicles, the medications and equipment necessary for its public hospitals and rural clinics, the classroom materials necessary for the school and university system, and practically all the inputs necessary to maintain the country’s infrastructure. Electricity brownouts and water shortages occurred daily; hospitals were so short of anesthetics, antibiotic medication, anti-diarrheal drugs, saline kits, and even ordinary bandages that patients were frequently required to bring their own. University instructors, lacking paper, wrote their syllabi on the chalkboard; their students took notes on the margins of scrap paper. Tanzanians who commuted to work sometimes had to walk for hours each way when bus service became unavailable. Tanzania in the second half of the 1970s was a country in which practically everything was in short supply: even the most basic consumer goods such as batteries, tools, light bulbs, automobile parts, and kitchen utensils became difficult to obtain.

Scarcities of essential goods gave rise to parallel markets; these spread rapidly throughout the country. The parallel marketplace provided any consumer item that was unavailable in the legal marketplace. The difficulty was that parallel markets were prone to spiraling inflation, which reflected both the scarcity of goods and the element of risk associated with their contraband character. The remarkable feature of the parallel marketplace in Tanzania and in other countries where such markets have assumed a large place is the variety of goods they deliver. Tanzania’s parallel markets were brimming not only with core necessities such as clothes, maize meal, cooking oil, and malaria drugs, but with a wide range of luxury goods, including air conditioners, portable generators (popular because of the frequent electricity shortages), and all manner of consumer goods including cameras, watches, music systems, and video players. Tanzania’s economic decline became a leading example of a continent-wide story of a seemingly irreversible downward spiral. Falling producer prices for export crops, which lowered farmers’ incentives, resulted in a rapid falloff in the country’s export earnings, which, in turn, crippled the country’s import capability including industrial and agricultural inputs. Decreasing producer prices combined with intensified efforts at social regimentation, such as the collective villages’ scheme, also resulted in dramatically lowered levels of marketed food staples. Tanzania was not only suffering from a virtual collapse of industrial production, but also experiencing a series of other critical scarcities, including shortages of food staples such as maize and rice.

By the mid-1970s, the country’s leaders found themselves confronted with a painful choice: divert the scarce flow of foreign exchange toward food imports to avert widespread starvation, thereby further hampering the effort to construct an import-substituting industrial sector, or allow foreign exchange earnings to continue to flow to industries, thereby widening the spread of famine. President Nyerere chose the former, allocating several hundred million dollars to food imports between 1974 and 1977. This decision helped to avert a severe famine, but it meant that the government had to withdraw precious financial resources from the industrial and agricultural sectors to finance grain imports. After twenty years of independence, Tanzania’s economic state of affairs was a dramatic reversal from the early 1960s, when it had enjoyed robust agricultural growth. Immediately after independence, Tanzania had enjoyed one of the highest rates of growth in food production of any of the newly independent sub-Saharan nations; it was not only self-sufficient in major food staples but was rapidly becoming a significant maize exporter to nearby countries, such as the Democratic Republic of Congo, Zambia, and Malawi. The export sector of Tanzania’s agricultural economy was also enjoying some success. At independence, Tanzania had been on track to become a significant coffee exporter as well as an important contributor to international markets in cotton, tea, sisal, and cashew nuts. Indeed, aside from the epochal failure of the colonial government’s attempt to introduce groundnut cultivation, Tanzania’s abundant supply of good agricultural land seemed to offer favorable growing conditions for many of the world’s major exportable crops.⁵

The immediate post-independence economic success was short-lived. Within less than a decade, Tanzania’s production of maize, wheat, and rice fell so far short of self-sufficiency that it was forced to import large volumes of food grains. Imports of various grains during the mid-1970s were averaging more than one hundred thousand metric tons per year, a huge economic cost. During 1974 and 1975 alone, Tanzania imported nearly five hundred thousand metric tons of maize at a cost of almost $100 million. Imports of wheat and rice to supplement the country’s maize needs raised the cost of food imports even higher, adding at least an equivalent sum to the burden on the country’s meager foreign exchange reserves. These were staggering amounts for a poor agricultural country with a population of only about fifteen million. The collapse of the agricultural sector was so severe that even farmers had to receive food assistance. Although drought conditions in some food-producing districts contributed to agrarian difficulties, the basic fact was that Tanzania had failed to translate the president’s vision of agrarian self-sufficiency into economic reality.

The root cause of economic decline was the stagnation of the export sector. Production of virtually every major export crop declined dramatically during that period, diminishing the country’s capacity to generate the foreign exchange required to sustain both food imports and the import of inputs necessary for the country’s fledgling industries. The World Bank captured the broad parameters of this decline in its classic 1981 study, Accelerated Development in Sub-Saharan Africa.

During the last fifteen years, the volume of exports in Tanzania has declined dramatically. In 1980, the total exports of the country’s major commodities (cotton, coffee, cloves, sisal, cashews, tobacco and tea, which account for two-thirds of the country’s export earnings) were 28 percent lower than in 1966 and 34 percent lower than in 1973. As a percentage of GDP, export earnings fell from 25 percent in 1966 to only 11 percent in 1979.⁶

Since earnings from agricultural exports were the principal source of funds for food imports, export failure was doubly disastrous. Major contributions of foreign assistance were necessary to avert rural starvation and severe depression in the urban economy.

Evidence of the country’s dismal economic performance manifested itself in the deterioration of the roads, schools, and medical facilities and the unreliability of public utilities such as water and electricity. Although members of the political elite managed to live well despite all that was going on, others suffered, especially rural Tanzanians, the designated beneficiaries of the president’s vision. Economic decline widened the material gap between urban citizens and rural farmers, already the poorest citizens. By the end of 1975, Nyerere’s vision of an agriculturally self-sufficient nation able to support itself and, therefore, free to pursue its own independent course in world affairs had given way to the reality of a nation dependent for its economic survival on the generosity of the donor community.

The decline of the export sector had ripple effects that permeated the entire economy. In addition to making Tanzania dependent on its donors to finance food imports, declining revenues from agricultural exports also resulted in severe constraints on industrial production. Tanzania’s industrial sector, largely oriented toward production for domestic needs, was almost entirely dependent on imported inputs. Virtually every requisite of industrial production, including capital goods, spare parts, and raw materials, had to be obtained from international markets, which demanded hard currency. The industrial sector also required a steady flow of hard currency to finance such industrial intangibles as patent rights and royalty fees and pay for costly management contracts with the global companies that provided technical services and skilled personnel. As the earnings from agricultural exports declined, the government had to divert an increased share of what remained toward the cost of food imports. This meant that the import requirements of the industrial sector were accorded second priority. Agricultural export decline manifested itself in scarcities of such consumer items as clothing, medicines, automobile tires, soap, chemical products, plastic goods, and even soft drinks, beer, and cigarettes. The World Bank estimated that, by the mid-1970s, Tanzania’s industries were producing these goods at only 20 to 30 percent of installed capacity.⁷

The faltering output of the agricultural export sector also manifested itself in the rapid deterioration of public services. In a largely agricultural country such as Tanzania, education, health, water supply, public transportation, trash collection, and energy provision also require inputs that are only available on international markets. With the supply of hard currency increasingly diminished, schools suffered from the lack of books and other supplies; hospitals, from the scarcity of drugs and medical equipment; public buses and trucks from the lack of replacement parts and fuel; and infrastructure improvement from the lack of virtually everything. Even the most vital urban services became badly degraded: water and electricity supply, trash collection, and public transportation operated intermittently at best and became increasingly unreliable, posing added risks to public health. During the 1970s, Tanzania was struck with a new and more lethal form of malaria, one that required hospitalization and continuous intravenous hydration. The patients with the best chance of survival were those who could bring their own intravenous kits to the country’s medical centers. Ordinary Tanzanians found it difficult to afford these kits. Those who could afford them quickly found that the supply in local pharmacies was quickly exhausted, after which, Tanzanians could only purchase the kits in high-priced parallel markets. To make matters worse, the malaria kits had to be stored in refrigerators, also a parallel market commodity.

Daily life for ordinary Tanzanians became painfully difficult. Urban dwellers faced scarcities of virtually every necessity. Dar es Salaam is a sprawling city whose working-class neighborhoods are distant from the city center where most businesses, factories, and government offices are located. For many residents, the daily commute to work became an agony of unavailable or unpredictable bus service. Indeed, many residents simply had to walk, sometimes for several hours each way, between their homes in the residential areas and their jobs in the city center. The deterioration of public and private sector services made it necessary for employees of schools, hospitals, banks, and telecommunications companies to divert much of their time to scouring the marketplace for essential items. There was unremitting uncertainty as to whether such basic household necessities as maize meal, sugar and salt, cooking oil, or natural gas would be available in formal markets—and less uncertainty about their availability in parallel markets, with prices there reflecting the scarcity that prevailed throughout the country.

Life in the rural areas became even more impoverished. Vital consumer goods were even scarcer in the rural areas, where purchasing power was so low that even parallel markets sometimes failed to materialize. Tanzania’s rural population consists overwhelmingly of small farmers, and for this major segment of the population, economic life was subject to extreme difficulty. One of the great ironies of food aid programs in contemporary Africa is that they find it necessary to deliver basic foodstuffs to rural populations who, under most conditions, ought to be supplying these for themselves along with a surplus for urban consumption. Throughout much of the Tanzanian countryside, such vitally important production goods as hoes and shovels became scarcer and more costly. Critical inputs such as fertilizers and pesticides became less available at any price. The deterioration of the rural infrastructure made it increasingly difficult to travel from farm to township to market products or obtain inputs. The socioeconomic gap between the countryside and the city grew ever larger.

The economic decline brought latent racism to the surface. In Tanzania in the early 1980s a strain of anti-Asian sentiment began to emerge that had always been present but had remained largely dormant under the influence of the Nyerere government’s insistence on multiculturalism and while economic conditions were still relatively tolerable. Anti-Asian sentiment had been a part of the country’s political discourse since the nationalist period when the Tanzanian African National Congress (ANC) sought popular traction by criticizing Nyerere and TANU for being insufficiently proactive toward Asian dominance in the mercantile sector. The ANC had also sought political support by asserting that mid-level Asian civil servants tended to stand in the way of upward mobility for Africans. Even Nyerere’s government turned to racist measures to deflect attention from economic conditions. The Acquisition of Buildings Act of 1971,⁸ though nominally part of the government’s socialist agenda, was in reality a legalized confiscation of Asian-owned rental property.

One of the enduring questions in the Tanzanian political economy is why the government delayed so long before implementing reforms that might have reversed the downward spiral. One source of delay was the absence of an alternative economic theory that could explain why the economy was performing so poorly and what steps were necessary to improve things. Although the World Bank had published its transformative report Accelerated Development in 1981, and although a small number of Tanzanian economists had begun to envision the need for a more market-based approach to the country’s economic management, the political elite continued to be enthralled by the Nyerere ethos of socialism through central planning. Fear of punishment for dissenting views trapped Tanzanian leadership in a perverse game of rescue the failed hypothesis. Anyone who openly challenged the official economic orthodoxy risked harassment, dismissal, imprisonment, or worse.

The economic reasoning that prevailed during this period held that since socialism must be correct, the causes of economic failure must lie elsewhere. The cloak of infallibility that enveloped the president’s approach to development caused Tanzanians to look for traitors in their midst to explain the country’s economic decline. A politically popular explanation for the country’s economic difficulties was the presence of economic saboteurs who were attempting to undermine the economy from within. This, too, was a form of racial scapegoating. Although it was not explicitly racial, everyone understood that the term saboteur was code to refer to the Asian merchant class that had historically been a major presence in the Tanzanian retail sector. Under the influence of a highly popular political figure, Edward Sokoine, who became prime minister in February 1983, the Tanzanian government passed an Economic Sabotage Act that gave it broad authority to take action against individuals and businesses suspected of creating and profiting from the scarcities.⁹ Under the new law, businesses that sought to maintain an inventory of essential goods could be charged with “economic sabotage,” a crime that might be punished with lengthy imprisonment.

To implement the law, the government initiated an anti-economic saboteur campaign, and by April 1983 there were more than four thousand arrests under the law.¹⁰ Although the majority of those arrested were Asian merchants accused of the economic crime of hoarding, some were the African managers of state-owned trading companies. Practically all were imprisoned. Most of the private merchants arrested also suffered confiscation of their warehouses and stocks of consumer goods. The anti-saboteur campaign was a dismal failure that only made matters worse. It had a chilling effect on the entire Tanzanian business community; the atmosphere of fear it created only exacerbated scarcities that were already severe because of the degraded economic environment.

Viewed in retrospect, Sokoine’s effort to convince the Tanzanian public that the country’s economic woes were the result of the self-seeking behavior of a small number of greedy merchants—not the deficiencies of a dubious theory of development—was the last gasp for the Nyerere ethos. Since the Sokoine arrests included a number of successful African business entrepreneurs and managers, his approach to solving the country’s economic problems was becoming unpopular before his sudden death in an automobile accident in early April 1984, just over a year after assuming office. The most pronounced effect of Sokoine’s anti-saboteur campaign was that it accelerated the growth of the parallel economy. Tanzania’s official economy, with its excesses of regimentation and rent seeking, was already a difficult environment in which to operate. The anti-saboteur campaign added an additional element of fear and uncertainty since the government could arrest and imprison a merchant simply for holding a supply of stock in reserve. To evade the anti-saboteur campaign, many entrepreneurs shifted their activities to the parallel sector, where business had long since learned to evade detection, oversight, and intervention by the Tanzanian state.

The Parallel Economy

Scarcities of essential goods generated their own remedies in the form of parallel markets, and a vast parallel marketplace arose to supply goods that were otherwise unavailable. The principal economic difficulty with the parallel marketplace was high prices, reflecting not only scarcity but the element of risk inherent in illegal transactions. The growth of these markets had two immediate effects. The first was to discredit the official economic system by calling attention to its failures and shortcomings. A government-sponsored chain of retail stores, Cooperative Societies of Tanzania (COSATA), became an object of ridicule for empty shelves with posted prices for goods that were unavailable. The social effect of the parallel marketplace was to accentuate the inequalities between the society’s haves and have-nots.

The social differences between those who could afford to acquire goods in parallel markets and those who could not would generate demoralization even in societies where an ethos of social equality was not present. However, in Tanzania the differences between haves and have-nots became especially burdensome because the president’s philosophy attached such great importance to the idea that all Tanzanians would share the burden of socialist development. The fact that those who could obtain goods in the informal marketplace were often high-ranking members of the country’s political elite made the social discrepancy even more demoralizing. Over time, many Tanzanians became convinced that the president had to be personally aware of the widening socioeconomic gap in their society. Some even came to believe that his public message of social equality was a disingenuous attempt to provide legitimacy for members of his own coterie even though he knew that they were behaving in a socially predatory manner.

As is inevitable in an environment of acute scarcity, inflation eroded the purchasing power of both public and private sector incomes. Yet Tanzanians with positions in the public sector, especially those at elite levels, were in a far better position to ride out the economic storm than those who were not. The upper strata of state officials became a privileged class relative to the economic hardships suffered by the vast majority of Tanzanians. However, the political elite was able to hide much of its wealth from public view. A large portion of the elite’s real income was in the form of benefits that, while not monetary, nevertheless had great monetary value, such as government-provided houses, official cars, expense allowances, and salaries for household staff. National Assembly members received generous per diem payments while attending legislative sessions. Government officials who had to travel—many contrived to do so—also received generous per diem payments, sometimes in hard currency. Since public officials could easily falsify their expense statements, these payments often became an important source of supplemental income.

The more influential members of the political class enjoyed a wide variety of other nonmonetary benefits as well. They could use their positions to obtain government jobs for relatives and friends, business licenses for family members, government contracts for political allies, and special educational opportunities for their own children and those of their political associates. Although these privileges did not count as income, they were an important part of what differentiated membership in the political elite from nonmembership. Many members of the political class also managed to hide their income by sequestering assets overseas, in bank accounts or real property. High-ranking public officials were also able to use their positions to avail themselves of other opportunities not readily available to ordinary Tanzanians, such as overseas travel and education. The highest-ranking members of the elite were able to obtain special medical services overseas and preferred access to other scarce goods and services. These benefits meant that the highest members of Tanzanian officialdom were able to insulate themselves from the scarcities that affected ordinary citizens. The sum total of their privileges helps explain why Tanzanian officials, like those in so many other comparable countries, were among the most reluctant to change the economic policies that they were fully aware were imposing hardships on the majority of the population.

The early pattern of elite inequality in post-independence Tanzania was so well concealed from public view and scholarly scrutiny that it is all but impossible to determine the extent to which inequality may have worsened during the period of economic reform. The country’s socialist ethos and a leadership code that forbade second incomes caused members of the political elite to go to great lengths to conceal their real incomes. Their homes were not generally accessible to the public, and they derived much of their cash income from unrecorded activities such as rent seeking. Public officials could also divert part of their income to the businesses and farms of close family members or political supporters. In contrast to today’s Tanzania, where luxury homes and luxury goods abound, there were far fewer opportunities for the elite to engage in conspicuous consumption. Tanzania during the 1970s did not feature expensive hotels or restaurants; there were no dealerships well stocked with late model Mercedes-Benz automobiles, and no shopping malls offering a glittering array of expensive goods. Many of the most lucrative benefits members of the governmental elite enjoyed did not appear in official figures on income distribution, which were based on salaries alone.

A significant source of difficulty for Tanzanian research has been the tendency for the government’s statistical data to make the country appear closer to the socialist imagery favored by the president than was in fact the case. Critics of the process of structural adjustment sometimes allege that market-based reforms have led to widening social inequality. However, this is difficult to verify since the monetary value of the total package of privileges enjoyed by the governmental elite is not easily quantifiable. Despite Tanzania’s culture of social equality, members of its governing class always enjoyed a material lifestyle far more affluent than that available to ordinary Tanzanians. They continue to do so. But whether—or the extent to which—this income disparity may have worsened during the period of economic reform, or whether it has simply become more conspicuous in the more openly permissive atmosphere of a market economy, remains unclear.

The income gap between members of the elite and smallholder farmers was particularly pronounced. There is a strangely persistent imagery of African smallholder farming as a subsistence economic activity insulated from the up and down cycles of the marketplace. This conception has always been profoundly inaccurate. Tanzanian farmers, like African smallholder farmers everywhere, have participated in the cash marketplace to purchase an array of goods, such as bicycles, radios, wearing apparel, and food items they do not produce themselves, as well as more expensive goods, such as concrete for flooring and galvanized material for roofing. They also needed cash to pay for educational and medical fees, pay local taxes and cooperative fees, and make remittances to urban relatives. As Tanzania’s rural economy deteriorated, cash for all these items became less and less available. For larger and larger numbers of rural Tanzanians, the direction of economic change was reversed; it was a matter no longer of moving from a subsistence lifestyle toward widening participation in the marketplace but of moving from a mixed economic pattern back toward subsistence cultivation as a strategy for economic survival. Where it did exist, subsistence production was the effect not the cause of broader scarcities, as degraded economic conditions drove smallholder farmers to give up production for the marketplace. As this process unfolded, the income gap between smallholder farmers and urban elites widened.

For most Tanzanians, the high prices in the parallel marketplace made the goods they had to obtain there unaffordable. Since price inflation in these markets was inevitable, the tendency for them to substitute for official markets as the source of many of the goods actually consumed on a daily basis accentuated the economic differences between the country’s haves and have-nots. Attempts to gauge the extent of these differences are notoriously difficult because the prices in parallel markets tend to escape official detection and reporting. By their very nature, informal market prices fluctuate greatly over time and by location; because so many involve gray market activities, they do not appear in systematic form in official surveys. The government figures tended to understate price inflation because they used official posted prices rather than parallel market prices for essential goods.

The magnitude and importance of the parallel marketplace imparted an element of unreality to Tanzania’s economic life. The prices set and recorded by the National Price Commission reflected an illusory world of affordability in which even poor Tanzanians could obtain food and other necessary goods. However, the reality was that essential goods were rarely available at the prices set by the government. In the legitimate marketplace, consumers often had to wait in line for endless hours for a trickle of basic items and, even then, went away empty-handed. Those who could afford to do so then made their way to the parallel markets that made those goods available at higher prices that went unrecorded. The most visible feature of the economy during this period was that goods scarcities were an omnipresent feature of daily life. The informal marketplace that arose to remedy these scarcities was a constant and painful reminder of the shortcomings of the government’s economic policy.

Corruption

The emergence and growth of the parallel marketplace changed the lives of Tanzania’s public officials in two ways. The first was that it provided an incentive for corruption. Public officials had a special advantage over ordinary Tanzanians in that they could more easily augment their incomes by becoming corrupt. This provides the best starting point for an understanding of Tanzania’s endemic problem of corruption: it arose as a coping mechanism that enabled public officials, in contrast with ordinary Tanzanians, to augment their incomes. Tanzanian political scientist Gelase Mutahaba has shown the extent of Tanzania’s public sector wage problem.

The period 1975–1985 was a period of uninterrupted real wage decline. Although the situation was not very different in most of Sub-Saharan Africa, with most countries experiencing double-digit real wage declines on an annual basis, Tanzania’s decline was more drastic than most other countries apart from those experiencing political instability. Average basic salaries in the public service provided only one-fifth of the purchasing power of equivalent salaries in the 1970s.¹¹

Civil servants who could find ways to extract rents from the citizens they were expected to serve—and this was practically everyone from primary school teachers and police officers to high ranking customs officials—began to seek bribes for their services.

The more consequential outcome of parallel markets was their tendency to transform public officials from advantaged consumers to parallel market entrepreneurs. It did not take long for the more entrepreneurial officials to realize that they could earn generous profits by participating on the supply side in the parallel marketplace and that their status as public officials afforded special advantages. One was that the gains from corruption provided a source of start-up capital; another was that the mantle of a government position provided a measure of security from official detection and sanction. These advantages made it possible for public officials to leverage their way into a wide variety of business arrangements with the parallel market entrepreneurs who actually bought and sold goods. The mechanisms for their participation in the parallel marketplace ranged from hidden partnerships with business owners who needed official protection to various forms of economic straddling by close family members. Whatever the mechanism for involvement, the outcome was the same: a certain portion of Tanzanian officialdom began to evolve in the direction of becoming a profit-seeking as well as rentseeking class.

For large numbers of public officials, rent-seeking behavior was only the first step in a longer and more far-reaching process of social mutation. What began to emerge in Tanzania during the 1960s and 1970s was a stratum of public sector officials who not only were able to augment their incomes by engaging in corruption but were becoming parallel market entrepreneurs in their own right. This transformation, at first gradual and then more rapid, is fundamental to understanding the Tanzanian political economy since the 1980s. The country was moving steadily toward a tipping point in its economic history. The first step was rent seeking, in itself the use of official position as a basis for income-maximizing behavior. The next and larger step in the process was for a portion of Tanzanian officialdom to wedge its way into the parallel economy as a full-scale entrepreneurial element.

This metamorphosis is fundamental to understanding Tanzania’s peaceful transition to a market economy. Once it became apparent that high-ranking officials could augment their incomes, sometimes greatly, by functioning as entrepreneurs in the parallel economy, Tanzania’s scarcity problem and the vast parallel marketplace to which it gave rise underwent a mutation. It is not possible to fix a precise date for this mutation. Its result, however, was that, at a certain point, a growing portion of Tanzanian officialdom had a deeper economic interest in preserving and even expanding the parallel marketplace than in resolving the conditions that caused it. Because of their rent-seeking skills, the most entrepreneurial officials were never much affected by the failings of the statist system. Indeed, so long as an important portion of their income derived from their ability to rent-seek in the statist economy so that they could profiteer in the parallel economy, they had a stake in maintaining both.

Profit seeking changed the cause and effect relationship between economic policy and scarcity. At first, Tanzania’s endemic shortages were the product of policy choices that resulted in poor economic performance. Before long, however, scarcities could not be explained as the unanticipated consequence of a well-intentioned but flawed set of economic policies. When it became clear that scarcity in official markets made for large profits in parallel markets, the public officials who participating in parallel markets had no economic interest in resolving the scarcity problem. The country’s failed economic policies became a matter of indifference or even a basis for wealth accumulation.

There was an ongoing dynamic of change at work in this process, however. As public officials deepened their involvement in the parallel marketplace, their economic interests underwent a further change. As rent seeking evolved into profit seeking, the presence of the state sector became a limitation on the accumulation of wealth. At a certain point, parallel market entrepreneurs stood to gain a great deal more if they could transform the official economy into a market economy where they could conduct business activities openly and expand them in scale. This change offers an important lesson in the dynamics of Tanzanian development. At first, public sector officials participating in the parallel economy had a stake in the preservation of the official economy because the scarcities it created raised the prices they could charge in their parallel market activities. As this stratum of officials developed into a more and more robust entrepreneurial class, however, the parallel marketplace, which at first had provided an important opportunity, became a constraint on their ability to expand and diversify their economic activities. The state economy now stood in their way.

This explains why so many Tanzanian public officials were at first opposed to economic reform and then began to welcome it. By the mid-1980s, many members of the political-economic oligarchy began to understand that they could accumulate greater wealth by extending their profitable activities to economic areas still dominated by the state, such as large-scale manufacturing, commercial real estate, and retail trade. To take over these areas of the economy, however, the governing elite needed to institute reforms that would legitimize such entrepreneurial activities. The tipping moment arrived when a sufficient number of Tanzanian entrepreneurs, many of whom had their start in the parallel economy, were ready to spread their wings by investing their resources in legitimate retail and productive enterprise. At that point, the presence of large-scale state enterprise was an obstacle in their evolutionary path. Liberal economic reform was the political precondition for illicit entrepreneurs in the parallel marketplace to become legitimate investors in large-scale enterprise.

What had begun as corruption for the purpose of supplemental income had led, in a series of stages, to the mutation of an entire social class. The first step in that transformation was for corruption to become the basis for concealed entrepreneurial participation in the parallel economy. The final step was for corruption to become the source of investible wealth that would make it possible for the highest-ranking members of the oligarchy to assume a dominant place in a legalized and rapidly expanding free economy. This evolutionary sequence explains why corruption has proven so difficult to eradicate. Although official corruption had its economic point of origin in the low purchasing power of public sector salaries, it has long been clear that wage improvements alone do not provide a solution.

Once corruption had begun, it metastasized through the society’s economic, social, and cultural systems in a variety of ways. The income that public officials obtained from rent seeking was not only built into their expectations as consumers, it was also built into their need for investible capital. The term that best suggests the full economic ramifications of corruption in Tanzania is primitive accumulation. Before long, the public officials who engaged in corruption did not treat their gains from this practice merely as supplemental income; they came to reckon it as an indispensable source of capital for the acquisition of land and other productive assets.

The opportunity for corrupt gains became a powerful motivation to pursue a public sector career. One source of this difficulty was that the heightened visibility of elite affluence during the era of reform gave rise to a completely new set of expectations about the lifestyle to which public officials could feel entitled. In Tanzania, extended family pressures added even further to the challenge of reducing corruption, as those fortunate enough to have lucrative public sector employment were expected to provide for relatives who did not. The result is that even as scarcities and prices eased during the period of reform, and even as public sector salaries have improved, Tanzania’s endemic problem of corruption has remained unabated. To the extent that is so, corruption is now functionally independent of the circumstances that first gave it rise.

Transparency International has taken the position that Tanzania’s highly centralized and extensively regulated economy was a major source of corruption.

Centralisation of the economy through nationalisation meant that the few powerful elites had a monopoly on the allocation of resources; in this situation, corruption was inevitable. Second, bureaucratic causes, such as red tape and rigid rules and regulations imposed by central and local government, contribute to increased corruption. Public officials were tempted to subvert these rules or were pressured into subverting them for individual or group gain, despite the fact that such acts were illegal. For example, one could not acquire a plot to build in Dar es Salaam unless one oiled the hands of bureaucrats.¹²

This was true as the initial source of the problem. Corruption, however, has persisted and even increased as Tanzania’s economy has become more open. If anything, the capital requirements for participating in the country’s expanding private economy have given many officials a greater incentive to engage in rent seeking.

Corruption thrived because it generated its own enabling environment. Ghanaian novelist Ayi Kwei Armah in The Beautyful Ones Are Not Yet Born described a perverse cultural universe in which government officials engaging in corruption became contemptuous of those who were not.¹³ Armah’s book describes a shame culture in which the few remaining honest officials became the objects of peer group derision and social pressure, often from their own families, to conform to the corrupt system. The force of this culture operated as a powerful motivation to accept the norm of corrupt behavior. The culture of corruption in Tanzania closely resembles that described by Armah. Even in the most prestigious organs of government, such as the court system, there are subtle social pressures to engage in corruption and, thereby, become a part of its normative environment. Jennifer Widner has described this phenomenon in the Tanzanian judicial system in her compelling biography of Chief Justice Francis Nyalali.

Social pressures meant that judges and magistrates who declined to take bribes were at once esteemed for the model they set, and chastised, for their inability to do better by themselves and their communities…. Observed Tanzanian judge William Maina, who had experienced the problem himself, “Magistrates were blamed if they did not engage in corruption. People would say, ‘He is a foolish person because he has not used his position.’”¹⁴

Tanzanian lawyer and legal scholar Dr. Edward Hoseah, also director-general of the PCCB in Tanzania, has written an important book on the extent and impact of corruption in his country.¹⁵ His research, which he bases partly on his role as a leading anti-corruption combatant, provides a compelling account of the effects of this problem. Hoseah observes that villagers in remote areas expect public officials from their village to return with gifts. When they do so, they are welcomed as heroes; when they fail to do so, they have shamed the village community.¹⁶

For the average citizen, the list of transactions with persons in authority is inexhaustible. Individuals seeking to obtain a driver’s license, receive medical treatment at a government hospital, enroll their children in school, report a minor crime at a police station, or mail a package at a post office—all encounter officials who expect an added financial inducement. One of the most common forms of corruption in Tanzania is the extortion of bribes by police for imagined offenses. According to a 2006 Commonwealth Human Rights Report, the Tanzanian police routinely arrest or detain people to extort bribes.¹⁷

Corruption in Tanzania has become so commonplace that it has generated its own vocabulary. The expression lete chai (literally, “bring me a cup of tea”), means “may I have a bribe?” and generally elicits the favorable response, nitakupa chai (“I will give you tea”). Encounters with the police also have their own phraseology: the common expression kuingia bure, kutoka kwa pesa means that there is no cost to go into a police station, but it will require a bribe to leave. The term takrima, which means “gift,” has two separate meanings, both associated with corruption. The first is the consideration public officials expect to receive in return for their services; the second has to do with electoral corruption, the small payments the CCM gives to people who attend its rallies and vote for its candidates. Corruption in the CCM is a topic of almost daily conversation among Tanzanians who distinguish within the CCM between mafisadi (corrupt ones) and political leaders who are safi (clean). Most politicians are in the former category; few are in the latter. Average Tanzanians generally feel powerless to do anything about these problems.

The major government study of corruption in Tanzania, published in 1996 and known as the Warioba Commission report because former prime minister Joseph Warioba wrote it, describes the all-pervasiveness of Tanzania’s corruption problem.

There is no doubt that corruption is rampant in all sectors of the economy, public services and politics in the country. There is evidence that even some officers of Government organs vested with the responsibility of administration of justice namely the Department of National Security, the Police, the Judiciary and the Anti-Corruption Bureau are themselves immersed in corruption: Instead of these organs being in the forefront of combating corruption, they have become part of the problem. Consequently, the ordinary citizen who is looking for justice has no one to turn to. He is left helpless and has lost faith in the existing leadership.¹⁸

No small part of Tanzania’s difficulty in dealing with corruption lies in the fact that the government agencies created to deal with the problem have become susceptible to the same set of difficulties, including inadequate wages, as other portions of the government bureaucracy.

The Warioba Commission’s inventory of corrupt practices has two broad categories. The first is petty corruption. This form of corruption is everywhere in Tanzania, and the report lists numerous examples. Teachers demanded bribes from parents to enroll their children in school. Hospital personnel, including doctors, demanded bribes for treating patients. Police officers arrested innocent people to demand bribes for their release. Finance Department personnel demanded bribes from fellow workers to release their payments. Judicial personnel demanded bribes from litigants to process their paperwork. There was no transaction with a government official, however small, that did not require a side payment.

The second form of corruption described in the Warioba Report is grand corruption, when high-ranking officials find ways to leverage their government positions for vast sums. This can occur when the government signs fraudulent contracts with suppliers, when it issues business licenses at a tiny fraction of their net worth, or when customs officials underestimate the value of imports to lower duties or charge special fees for the timely clearing of shipping containers. Once embedded in the system, corruption becomes entrenched. Transparency International ranks Tanzania as one of the world’s most corrupt countries, but despite an outpouring of donor complaints, media attention, and citizen frustration, the problem remains unabated.¹⁹ The government’s anti-corruption efforts are widely perceived as pitiably ineffective. Tanzanians point out that their government has not successfully prosecuted a single case of corruption and that even parliamentary resolutions calling for specific actions against corrupt officials are routinely ignored.

A tacit conspiracy of impunity further enables corruption. Although some high-ranking officials have had to resign or been dismissed from their positions, and a few have even been brought to trial, practically no one has been convicted or required to restore funds to the government. Those who engage in corruption form an unspoken agreement that they will not inform on others who do so. This is what makes corruption so difficult to prosecute. In a culture of corruption, it becomes wholly permissible, almost obligatory, to condemn the generic phenomenon and, indeed, to cry out publicly for reforms that will address it. However, there is an understanding that those who do so will not name names or call for the legal prosecution of particular individuals. Because of all these factors, the problem of corruption has continued unabated during the current era of economic liberalization. Despite a vast and continuous outpouring of official studies and public pronouncements, as well as the formation of a series of government anti-corruption bureaus, and despite unremitting efforts to exhort public servants to cease this practice, the problem persists.²⁰

Hoseah’s research shows that corruption in Tanzania has contributed to economic decline by imparting an element of unpredictability to the court system. Since there was no certainty that judges would uphold legal documents, prospective investors had every reason to feel insecure. Tanzanian courts have offered no certainty that business contracts would remain binding, that business partners would make payments as scheduled, or that contractors would deliver goods and services of agreed-upon quality. Judicial corruption has caused numerous investors to seek more secure alternate investment locations. Tanzania’s first economic shock was the failure of direct foreign investment. This is attributable to numerous causes, and even without corruption foreign firms might have found it more profitable to sell or lease their equipment to Tanzanian enterprises rather than invest directly. However, corruption in the court system has been such a significant deterrent to foreign investment that it has had a direct effect on the country’s economic performance.

The cause and effect connection between corruption and low growth is both multidimensional and all-pervasive. Corruption represents a transfer of scarce economic resources away from vitally important expenditures on schools, medical facilities, and infrastructure and toward conspicuous consumption on the part of the elite. Corruption also increased the operating costs of practically all forms of business enterprise. By draining funds that might otherwise have gone to improvement of public services, corruption has lowered government ability to improve the country’s energy, telecommunications, and transportation systems. The businesses that depend on these services operated less well or found opportunities to go elsewhere. Tanzanian businesses have also had to contend with the rent-seeking demands of bureaucratic officials seeking to increase their income. In an environment in which virtually every business activity involved some sort of transaction with a governmental agency, bribes increased the costs and the risks of everyday business activity.²¹ This has lowered economic performance by shifting investment priorities away from productive enterprises, such as factories and farms, which were proving to be vulnerable to official predation, toward economic activities that exposed less capital to political risk, such as small retail kiosks or other forms of petty trading.

Tanzanians with capital to invest withheld their efforts or devised ways to send their capital to other countries where they could invest more safely. Many emigrated for the same reason. It would be speculative to estimate the amount of additional economic activity that might have taken place if prospective investors had found Tanzania’s business environment more attractive. Nor is it possible to make an estimate of the amount of Tanzanian capital that found its way to North America or Western Europe. The critical point nevertheless stands: the depth of the country’s economic decline was to some degree a product of the sheer reluctance of both Tanzanians and foreign investors to engage in economic activities that might expose them to the extractions of bribe-seeking officials. The long-term costs of diverting investments away from productive activity also included flight of human capital as numerous aspiring entrepreneurs fled Tanzania to create business enterprises elsewhere in the world.

Corruption also created an incentive for families to divert their investible savings away from productive entrepreneurial activities altogether and toward the costs involved in acquiring rent-seeking positions. This could be the cost of a graduate degree or the cost of the bribe for appointment to a public sector post. In her classic article “The Political Economy of the Rent-Seeking Society,” Anne O. Krueger theorized that where rents are available from bureaucratic positions, the economically prudent family would find it more lucrative to use its resources to purchase a civil service position than to rehabilitate its farmland or upgrade its factory.²² Krueger’s analysis describes Tanzania perfectly. It did not take Tanzanians long to discover that funds invested in productive businesses were high risk and low return relative to gains from holding public office. Indeed, Tanzania’s socialist ethos accentuated this problem since it meant that investment in a profit-making enterprise was at a particularly high level of risk. Government positions, by contrast, were both secure and remunerative. The desirability of rent-seeking opportunities changed the explanations for Tanzania’s tendency toward rampant bureaucratic expansion. Tanzania did not expand its bureaucracy in order to manage economic growth, but because there was a clamor for rent-seeking opportunities among members and supporters of the governing party.

In today’s climate of improved freedom of the press, corruption scandals attract the attention of the Tanzanian media. The almost daily reports of corruption scandals are socially demoralizing because they call attention to the unjust enrichment of a few well-connected individuals at the expense of the public. The demoralization corruption creates is obvious everywhere. It fosters an atmosphere of cynicism and mistrust and causes ordinary citizens to become indifferent or even hostile toward government programs, which the public perceives as conduits for the transfer of public resources to private individuals. In Tanzania as in other societies where corruption has contaminated the economic atmosphere, citizens begin to doubt the validity all public sector programs, which, they believe, always have an ulterior purpose.

The demoralization caused by corruption, ironically, has also had some benefit in making it easier to introduce economic reforms. When it came time to move away from the state-centered approach that had caused such deep decline, very few Tanzanians objected. The dog that did not bark in Tanzania was citizen protest against economic liberalization and in favor of retaining the socialist economy. Unlike many countries that undertook sweeping economic reforms demanded by the international lending institutions (ILIs), Tanzania did not experience food riots or other forms of public demonstration against the process. Although some Tanzanian political leaders and intellectuals inveighed against the reforms the World Bank and IMF insisted on, their criticisms were tempered by the fact that they had very little resonance among ordinary Tanzanians. Few Tanzanians regret the passing of the difficult conditions they had to live through during the decades following independence.

Estimates of the budget effects of corruption vary. In 2009, President Kikwete estimated that one-third of Tanzania’s annual budget of nine trillion (Tanzanian) shillings was being lost to corruption.²³ Transparency International offers a somewhat lower figure, estimating that about 20 percent of the government budget is lost annually to corruption.²⁴ Whichever is correct, the result is the same. Corruption is an upward transfer of income: the poorer people in the society pay bribes to relatively better off public officials. The schools, hospitals, and public services that are important to the poor and the middle class became starved for resources; corrupt politicians could afford a lavish lifestyle. The sheer magnitude of this loss has given corruption an additional self-reinforcing quality: lowered revenues make it difficult to raise public sector salaries; low salaries are the starting point for corrupt behavior.

The corruption that emerged during the era of decline remains the scourge of the Tanzanian economy. Despite an outpouring of government reports, practically daily media coverage, and the creation of a series of anti-corruption tribunals within the government,²⁵ it exists everywhere at both the lowest and highest levels of the system. A 2010 Dar es Salaam Guardian article describes the extent of Tanzania’s corruption in the following terms:

Dishonest traffic police will use their uniforms to finance their homes, some magistrates sell justice to own posh houses, some bankers, too, will steal to finance their mansions and journalists are not spared; they will use their pens to finance their dream homes, and so goes the shameful game! To some of the business communities the shortcut way to own a palatial home is through tax evasion, frauds or dirty business like drugs trafficking. While in a country like South Africa buying a $1 million home without borrowing from the bank or having clear source of funds can land you in jail, in Tanzania, the situation is the opposite.²⁶

According to a 2009 survey of corruption, Tanzanians viewed the police force as the most corrupt institution alongside the judiciary and the health sector, followed closely by land tribunals and local governments.²⁷ An updated survey conducted in 2011 by the independent anti-corruption NGO Front Against Corrupt Elements in Tanzania (FACEIT), funded by the government of Denmark, added the Tanzania Revenue Authority to this list.²⁸ A fuller list of corrupt institutions would include the Tanzanian military, recently given the grade D– by Transparency International for a variety of corrupt practices, including procurement, promotions, and extractions from local communities.²⁹ The Tanzania Corruption Tracker has cited numerous complaints about the corruption at the Port of Dar es Salaam, including loss of containers, smuggling of banned cargo, and loss of revenue.³⁰ It has also cited the National Housing Authority, whose officials continue to extract bribes for rental or repair of government-owned apartments.³¹ All these reports point toward a single conclusion: corruption enables a stratum of public officials in these institutions to afford a lifestyle beyond the imagination of most ordinary Tanzanians.

During Tanzania’s socialist period, public officials hid the wealth they gained through corruption. The CCM’s leadership code and the ethos of social equality discouraged conspicuous consumption. This is no longer so. Today, the wealth of Tanzania’s politico-economic oligarchy is easy to observe. Almost any Dar es Salaam taxi driver can provide a guided tour of the city’s “posh” neighborhoods as well as a detailed narrative of the lifestyles of the rich and famous who reside there. The exclusive residential communities on the northern coastal shores of the capital city provide visual evidence that the members of Tanzania’s political-economic oligarchy no longer feel the need for diffidence about the extent of their personal wealth. And since the owners of these homes, many of which belong to high-ranking political leaders and administrative officials, appear to be widely known among Tanzanians, the opulent walled residences of Oyster Bay and Msasani provide an incontrovertible indicator of the interconnectedness of political power and private accumulation. They also provide compelling evidence of the role of corruption as the link between the two.

Using one of the more powerful images in modern political economy, economists Brian Cooksey and Tim Kelsall have depicted corruption as Tanzania’s tragedy of the commons.³² Their metaphor is apt. Just as pastoralists overpopulate their common grazing lands, Tanzania’s public officials engage in corruption even though they are well aware that it degrades the overall performance of their nation’s economy. The reason is the same: one official’s gain from corrupt activity is greater than his or her share of the collective economic loss. The follow-up question posed by the work of Nobel Prize winner Elinor Ostrom is whether a society generates corrective political mechanisms that address the problem.³³ Whereas pastoral and other communities have been able to invent political institutions that enable them to manage common resources for the public good, Tanzania has thus far been unable to do so. The best prospect may lie in the electoral arena where corruption has become the largest single issue. In the 2010 presidential election, the Chadema Party (Party for Democracy and Progress), which campaigned on an anticorruption platform, gained about 27 percent of the presidential vote. Its popularity suggests that corruption, left unaddressed, may prove to be the weakness that finally loosens the CCM’s grasp on power.

In the eternal quest to develop a political economy that differentiates between causes and effects, corruption has a special position: it functions as both. It is an outcome of economic decline because it takes root in falling public sector incomes. However, as corruption transfers income away from government to private consumption, it is also among the causes of poor economic performance, since it helps to perpetuate the budget difficulties that first brought it about.

The Authoritarian Trend

There is less ambiguity about the relationship between corruption and the tendency toward authoritarian rule. By eroding trust in government authority, corruption diminishes the prospects of government legitimacy based on the consent of the governed. In societies such as Tanzania, where corruption affects nearly everyone, it creates an almost adversarial relationship between citizens and the state, forcing government to turn increasingly to coercive mechanisms to maintain itself in power. Its greatest contribution to the authoritarian tendency, however, is to raise the stakes of holding onto political power. Since political office is the key to acquiring wealth, the loss of political power is an assured way of losing it. This anxiety unifies the members of the CCM political oligarchy and, whatever their other differences, fortifies their resolve not to be defeated in general elections.

The statist economic strategy, the spread of corruption, and the emergence and trend toward authoritarian rule went hand-in-hand. The causal connections were painfully apparent. Rural populations who were the overwhelming majority of the society quickly came to resent the imposition of a policy framework that subjected small farmers to deeper and deeper levels of taxation as well as increasing social regimentation. Until the new industries became sufficiently large to employ significant numbers of workers and managers, the social groups in favor of the industrial strategy would be limited and barely organized as a political coalition. The political dilemma of the ISI strategy in countries where the overwhelming majority of the population was smallholder farmers was that the pain of economic loss would be suffered far earlier and by far greater numbers of families than would benefit in the short term from the emerging industrial sector. To resolve this dilemma, governments would need to resort to authoritarian measures to impose the strategy on reluctant majorities.

A steady drift in an authoritarian direction marked Tanzania’s post-independence years. The tendency toward greater and greater state control assumed several different forms. In the legislative realm, it consisted of the continuation of a number of colonial-era laws combined with a set of new laws that gave the Tanzanian government a high degree of coercive authority over the lives of individuals and the activities of civil society associations. Taken as a group, these laws are known as the forty oppressive laws, identified as such in the report of the Presidential Commission on Single Party or Multi-Party System in Tanzania in 1991. This report is commonly referred to as the Report of the Nyalali Commission, after its chair, Chief Justice Nyalali. In its inventory of oppressive legislation, the Nyalali Commission report included such laws as the Preventive Detention Act (1962), the Regions and Regional Commissioners Act (1962), the Collective Punishment Ordinance (1921), and the Resettlement of Offenders Act (1969).³⁴ Under the Preventive Detention Act, anyone suspected of dissident political activity could be imprisoned and held without trial for a specified period. The National Security Act of 1970 gave the Tanzanian police a wide degree of latitude to arrest (without warrant) and to imprison persons suspected of “sabotage.”³⁵

Large parts of the oppressive legal framework fell with special weight on the country’s rural population. The Regions and Regional Commissioners Act, passed the same year, gave Tanzania’s regional commissioners, who represented government authority in the rural areas, the power to use that act, thereby empowering them to become virtual autocrats.³⁶ The Collective Punishment Ordinance, which gave the government the authority to impose collective punishment on the community with which an accused individual was associated, meant that villages and towns could be held hostage to the political behavior of their individual members. Other legal measures further illustrate the Tanzanian government’s determination to impose its economic will on the countryside. The Confiscation of Immovable Property Decree of 1964, for example, permitted the government to confiscate land without compensation. Smallholder farmers, lacking in resources and without the ability to defend themselves in court or in the political arena, were powerless to resist the arbitrary use of this legislation.

The government further disempowered rural communities by abolishing the administrative and judicial role of traditional chiefs. During the colonial era, many important functions of local administration, including local law enforcement and taxation, had been carried out by government entities termed native authorities. Traditional chiefs, many of them appointed by colonial authorities, presided over these institutions. However, during the late colonial period, traditional chiefs had also begun to act as spokespersons for local communities, communicating rural grievances over agricultural taxes, inadequate educational facilities, discrimination in government employment, and, more generally, the indignities of the colonial experience. After independence, President Nyerere took the position that the native authorities were feudal institutions that had no place in a modernizing democratic society, and the special powers and financial resources assigned to traditional chiefs were eliminated. Whatever the merits of this viewpoint, it is best viewed in its economic context. As the central government began to escalate its levels of taxation and political control over the Tanzanian countryside, traditional chiefs had become active spokespersons for local communities discomfited by the new economic framework.³⁷ Dissolving the authority and special status of these individuals was one of several mechanisms for minimizing local resistance to central government control and heightened agricultural taxes.

The major step in Tanzania’s authoritarian drift was the creation of a constitutionally mandated single-party state in 1965.³⁸ The political imperatives that set this transition in motion are self-evident. The economic measures that the government was beginning to implement created an adversarial relationship between a small urban minority of civil servants and industrial workers and the overwhelming majority of the population, which consisted of smallholder farmers. An open, multiparty democracy, which would empower the rural majority to oppose this policy, would place the ISI strategy at risk. If the party of the rural majority were actually to gain political power, the economic framework that over-taxed farmers to invest in urban industry would quickly come to a halt. The only alternative, other than to abandon the strategy, was to eliminate any possibility of opposition parties that might gain the support of the rural majority.

The Policy Factor

Reduced to its essentials, the most elemental question about these trends can be stated simply: what caused all this? The best place to begin looking for an answer is in the area of policy choice. Robert Bates’s answer to this question centered on the differential influence of urban versus rural interest groups. He theorized that a powerful coalition of urban interests—including industrial workers and civil servants along with businesses attached to the industrial sector—used their political muscle to impose an economic framework that extracted wealth from the rural population to transfer it to the new state-managed urban industries. The concentrated political power of these groups far exceeded that of smallholder farmers, for whom collective action proved especially difficult because they were scattered over vast distances, physically remote from the capital city, and hampered by a scarcity of organizational skills. As a political explanation for the continent-wide pattern of agricultural decline that followed independence, Bates’s theory has dominated discussions of African development. It remains the starting point for any political understanding of Tanzania’s agricultural decline.

On closer reflection, however, it became apparent that Bates’s urban bias thesis had a serious shortcoming. It overstated the influence of urban interest groups relative to their rural counterparts. Bates himself was among the first to point this out. In a 1991 article, published a decade after his book Markets and States, he acknowledged the existence of “discordant facts” that contradicted his earlier depiction of a decisive power imbalance between city and countryside.³⁹ Bates’s discovery of discordant facts applied with special force to Tanzania where interest groups connected to the rural sector were very strong. Export-oriented farmers such as coffee, cotton, and tobacco growers had formed well-organized producer cooperatives, with well-funded apex offices that provided an influential lobbying presence in the capital city. Several of the country’s most powerful trade unions were closely tied to the prosperity of the agricultural sector rather than urban industry. One was the agricultural workers’ union, whose members depended on planting, harvesting, and processing exportable crops. A second was the transportation workers’ union, whose members transported the crops from the agricultural regions to the port cities of Dar es Salaam, Tanga, and Mtwara. The third was the dockworkers’ union, whose members then loaded the country’s agricultural exports onto ships. Taken together, the membership and influence of these unions far outweighed those of workers in the industrial sector. Policies that diminished the well being of export-oriented farmers would inevitably have a similar effect on these workers as well. The farmer-worker coalition, though unusual in that it jointed together employer and employee, constituted a powerful opposition to policies that imposed costs on the agricultural sector.

Bates’s urban bias approach reversed cause and effect. As a matter of historical sequence, urban industrial workers and managers did not become a well-organized political force until state-led industrialization was well underway and until some of the larger publicly owned industries, such as wearing apparel, footwear, brewing, and cigarettes, had grown to the point where they employed a large workforce. In other words, the industrial unions that became a powerful force for the policy bias against agriculture only emerged after the industrialization policy had begun and after the factories that employed large numbers of industrial workers had completed their hiring and begun operations. For Tanzania and a host of other African countries, then, the presence of powerful industrial unions does not explain why the policy of taxing agriculture to fund industries first began. However, it does help explain why this policy remained in place so long after its harmful effects had become visible.

The key question, then, suggests itself: why did Africa’s leaders adopt a set of policies so harmful to the development of their societies? The most persuasive answer is the influence of prevailing economic ideas. During the roughly two-decade period from the mid-1950s through the mid-1970s, innumerable African governments derived their policy preferences from a subfield of economics known as development economics.⁴⁰ Tanzania was among these, and its policy choices throughout these two decades reflected the profound influence of this field. The development economists were intellectually joined by their mutual concern with the question of how primarily agricultural societies might best achieve sustained economic growth. They were pessimistic about the growth benefits of free markets as the best economic model for developing countries; they were pessimistic about the possibility that the agricultural sector might provide the basis for broad-gauged growth. In addition, they had doubts about whether free trade would provide sustainable development for countries dependent upon the export of primary commodities. Their economic strategies derived from these views. They believed industry, not agriculture, should have the highest priority; they believed protectionism, not free trade, would help industry to develop; and they believed the best use of the agricultural sector was as a resource base to provide the input needed to create industries.

The most widely discussed basis for the development economists’ agricultural pessimism was the notion of falling terms of trade for agricultural products. Many of these economists believed and tried to show that the prices developing countries received for their agricultural exports would tend to fall relative to the prices of the industrial products and consumer goods they needed to import. To the extent that this was true, rising levels of agricultural exports could only sustain a constant level of imports, and this would cause each producing country to seek to increase its export levels.⁴¹ Agricultural exporters would find themselves in a repetitive cycle of diminished well-being because the downward pressure on agricultural prices would cause them to fall relative to the costs of industrial imports. The difficulty in increasing agricultural prices at a pace commensurate with price increases for industrial goods had to do with the ease with which second- and third-party producers could enter global agricultural markets: it was far easier to capitalize and operate a new coffee plantation than a new automobile industry. The validity of this idea continues to be an unresolved topic of discussion among economists.⁴² But so long as it held intellectual sway, it discouraged any tendency to view agriculture as a possible source of robust economic growth.

The development economists were convinced that the best use of the agricultural sector was as a source of resources, such as capital and labor that could be invested in industry. To reinforce this viewpoint, they assembled an entire repertoire of concepts that cast doubt on the wisdom of investing in the agricultural sector. Among other ideas, for example, the development economists stressed the low marginal productivity of labor in agriculture; the idea that labor productivity in agriculture would be less, at the margin, than labor productivity in new industries. The ideas of W. Arthur Lewis were especially influential, and his most famous research sought to show that agriculture could provide a labor supply for industry without adverse effects on agricultural production.⁴³ Benno Ndulu, today governor of the Central Bank of Tanzania, has stated Lewis’s idea succinctly: “Lewis’ seminal paper on the dual economy provided the rationale for perfectly elastic supply of labor released from agriculture where its marginal product was zero or released at a constant, institutionally set wage below the industrial wage.”⁴⁴ Those responsible for framing economic policy in Tanzania and elsewhere interpreted Lewis’s research to mean that they could siphon labor out of agriculture without adverse effects on the agricultural sector and deploy that labor to industrial production, where its contribution to economic growth would be much greater.

One of the most influential of the development economists’ ideas about agriculture was the so-called backward bending supply curve of agricultural production. According to this notion, smallholder farmers in developing countries did not behave as income maximizers in the traditional economic sense, that is, by increasing their marketed production in response to favorable price incentives and then decreasing their production when prices fell. Instead, the development economists portrayed smallholder farmers as target workers whose participation in the marketplace was motivated by the need to have a certain level of cash income for specific purposes, such as to pay school fees for children, to purchase a bicycle or concrete flooring, or to pay local taxes or medical fees. Once farmers acquired that amount of cash, they would stop producing for the market and withdraw into a local economy of subsistence and barter. If this theory was correct, it meant that farmers benefiting from a price increase might well produce less of the good rather than more since their cash needs would be satisfied with a lower marketed volume. Similarly, if the farmers’ price for a good were to decline, they would have an incentive to produce more of the good, rather than less, in order to attain the required level of cash income.

This concept provided the theoretical foundation for policies that increased taxes on farmers. What the development economists appeared to be saying was that governments could adopt tax measures that lowered the producers’ net return on an agricultural good without risking a falloff in production for the marketplace. This idea became a fundamental conviction among many of the economists and policy advisors involved in the development process and set the stage for the post-independence era of escalating taxes on agricultural producers. Convinced such taxes might actually yield higher levels of production, many African countries began to impose a whole set of additional taxes on agricultural products. In Tanzania, these additional taxes began with agricultural exports but quickly embraced food staples as well.

During the 1950s and 1960s, the development economists’ prescriptions exercised a powerful influence over the policy choices of a host of developing countries, not only throughout sub-Saharan Africa but also in Latin America and South and Southeast Asia. In conception, the ISI strategy of development was simple: it reinvents the old idea of the infant industries approach that was popular in the early industrial history of the United States. The infant industries would receive an incubator of protection until they had matured into adolescent or even full-grown industries, able to stand on their own in a competitive world. Both the ISI strategy and the infant industries approach emphasize the benefits of substituting domestic industrial production for imports, and both emphasize the need to provide the new industries with trade protection during their formative phase to insulate them from international competition by more mature firms. To political leaders throughout the developing world, both in sub-Saharan Africa and in other developing regions, the key challenge for policy-makers was to find ways to transfer productive resources from agriculture to industry.

The influence of the ISI model derived from several factors. Many of the development economists were among the most prestigious and highly regarded members of the economics profession.⁴⁵ Sir Arthur Lewis and Gunnar Myrdal were Nobel Prize winners; Albert Hirschman was a professor at Yale; Hollis Chenery, a former Harvard professor, was a vice president at the World Bank. Many major universities hired development economists to senior faculty positions and treated development economics as a vital subfield, worthy of its own faculty and eligible for its own qualifying examinations. Many economics departments tended to stream students from developing countries into this field on the premise that it would help them to make a practical contribution to their countries. On their return, many of these students took up positions in critically important government ministries where they had a direct effect on policy choice. In Tanzania, one of the most powerful vectors for the dissemination of the development economics approach was the influence of the major lending institutions such as the World Bank, and the principal bilateral donor agencies such as the U.S. Agency for International Development (USAID), which hired economists imbued with the development economics approach.