The Moorish Wanderer

Thou shall not bow thee economic plans

Posted in Dismal Economics, Moroccan Politics & Economics by Zouhair ABH on April 19, 2010

In essence, the left-leaning chum would be anti-monopoly (private monopoly of course). Why ? Because it makes people pay more for fewer goods, and it uses its dominant position to lock the market away and setup some kind of rent economy.

Does it sound odd? I mean, for a radical to advocate market competition instead of an old-fashion planned, centralized, state-owned economy. Of course, if you keep cluttering your mind about it, one can never get to the bottom of it anyway.

I think even the radicals are not sure about it. The fact is, they entirely focused their struggles on the political issues (including personal choices, free speech, religion, sexual orientation and other individual choices) that they lost more or less sight of the economy.

Save for those with some economics-reading background economics, as I underlined before, is a weakness.

Morocco had got only two opportunities when left-leaning governments were in power. A. Ibrahim in 1959 had to supervise building up the economy from little, pre-colonial shamble (and it does count, though it provided the land with some invaluable assets) and in 1998, when A. Youssoufi started the so-called ‘Alternance Consensuelle’, with a finance minister with so narrow a margin, that he had to get on with it and basically to implement right-wing policies. In facts, save for some nationalization and planned economy, radical left-wing economics has little to provide. I came across some cooperative theories that can be of use, but they are not widely considered suitable for manifestos, but I believe it to be something the new left should promote.

Not that I reject completely economic plans, but it seems to me the economy, like the society, is part of the collective and individual rights and liberties. Besides, centralized, soviet-like economic structures are contingent plans, and more likely to be (relatively) efficient when a country is either in autarky –with enough resources to stand its needs- at war or emerging from one (very much like former USSR in 1921-1928 and after 1945)

I fear I’m losing your attention. Let me just sum up real quick my own stand –with a simplistic description for the moment-: market economy is not fundamentally evil, and when properly monitored (meaning that the government has a neutral role of umpire), could deliver a good deal of wealth to society, and thus preventing income gaps, poverty and the social problems that ensue.

Of course, that’s just a utopia that might never be achieved. I should perhaps add that I still favor collective ownership, in the sense that employees should take over and be their respective own companies’ shareholders; the idea that communism or socialism means all productive units (businesses and firms as it were) should be state-owned is a distorted opinion –based on a historical experience that didn’t do justice to itself- of what ‘collective ownership’ means; Of course, I am not an expert in Marxist theory, but I seem to remember, that first, Marx didn’t advocate for state-owned economy (and in facts, his views on government are quite interesting to study) and second, he started, late in his life, to take interest in the mathematical background he needed to make the dialectic more ‘scientific-like’.

However, before such principles could be applied to the Moroccan context, there are so many roadblocks one has to do away with; the present system (what is considered to be the Makhzen) has its economic bastions too, and in the event of a constitutional reform, a democratic government, whatever its political stance, will face considerable resistance from occult economic lobbies.

The idea is that an ‘honest’ government (in the sense that they genuinely care about the public welfare) would be broken within weeks if they do not comply with what some powerful lobbies dictate as terms of appeasement. In that case, a hypothetical radical left-leaning government will have to deal with it in the most direct way, i.e. to nationalize –or any similar decision these institutions. If I may add something else, the nationalizations or such as they would be described, are not definitive, nor part of a move to control a monopoly and turn it to the state benefit, for these institutions will be privatized afterwards into small pieces, none of which could recover –at least for a certain time- the monopoly position they had, with all the perks and the rents that ensue.

It’s not a clever solution, I know, though it’s the intricate question of how democracy and economic power can cope with each other: the ruling majority has a popular mandate, but economic lobbies will block the government of the day because it may harm their interest (and believe me, the same applies to the unions, for they do not always act on behalf of the workers’ interest, let alone their own members’) Temporary nationalization is two-fold: first, to ensure a little cash security for the government –nationalizing is quite expensive, unless one is set not to compensate the previous owners and a bit extra to finance some project or whatever the government wants but cannot achieve (black ops or electoral bribing are not included)

How do we proceed? I am not a trained lawyer, though I think it might go like this: at an unspecified moment, the government seizes the targeted companies, and delivers the opening price for the shareholders on the stock exchange market. There is no need to stress on how crucial this move has to be in terms of secrecy and swiftness: an expectable government move will lead to a dramatic rise in the stock price, making the whole operation very difficult to carry on. That’s not the difficult part: actually, the hardships to follow are to ensure the staff loyalty, a sustainable profit margin and possible retaliation from other companies (especially foreign interest, because, let’s be honest, a couple of multinationals will be infuriated when the decision comes into effect)

I already hear some reservations: why take on large companies, aren’t the ‘national champions’ the key players of our global strategy? I refer to what seems to be the economic model adopted by the high spheres to ensure our economic development. It imitates, in a very amateurish way, the South Korean and Japanese models of large conglomerate of private monopolies on the national markets, and aggressive, rent-seeking entities in similar markets (Maroc Telecom in Mauretania for instance), the ultimate goal being a progressive accumulation of a rent that would be later on invested, and subsequently provide Morocco with the boost it need to develop itself. The strategy, however, has a major flaw: the rent is almost systematically paid as dividends to the shareholders. Ok, Châabi does invest in ‘social responsibility’ sectors –and those moves should be encouraged indeed but there’s a huge amount of profits that lies there, and it’s just divided up between a tiny yet powerful mob of upper-class people. I think the following figures could give you indeed an idea of how it goes down.

Millions MAD

ONA-SNI

IAM

Addoha

Attijari

Total Sales

18 277.9

30 339.0

6 011.96

11 927.7

Operating Profit

1 148.3

14 008.0

1 552.45

4826.69

Operating Margin %

6.3%

46.2%

25.8%

40.5%

Net Profit

1 863.6

9 779.0

1 023.79

3 940.84

(CDVM regular financial statements, 2009)

These figures show a high operating margin, too high for a good company. Its quite difficult to state that they sustain that high a level of profits, but if so, we can then reasonably assume that their profits are not the result of competition in their own sector, but rather the benefit of a rent or quasi-rent they get out their monopoly –or close to it- situation. Furthermore, these companies happen to be loaded with cash (I didn’t have a close look to their cash statements, but it seemed quite high) and distribute much of their profits as dividends. I won’t bring out of the wood some fancy econ theory, but I would like to discuss in length what the seemingly narrow margin ONA holding displays hides in terms of rent: the company has an indecent rent situation on consumer goods such as Sugar, Oil, Milk & Derivatives, Waters and so on… (Incidentally, ONA is to merge with SNI soon, so precious information will disappear, as the new entity will no longer be listed on Casablanca Stock Exchange, and therefore, will have no statutory obligation to display its financial statements… I hope they will list under the new entity, after all, it’s in their interest to display some financial transparency, foreign investors-wise)

Let us first enquire about what does the Moroccan household consumes, or rather, how do they affect their income.

The national statistics office produced a survey in 2001 in which 46% of the total average income (253.186 MAD yearly) is devoted to consumption goods.

In a nutshell, the consumption structure is as follows:

Why do we have to bore ourselves with these figures? Well, the idea is to prove that, because of the important percentage devoted to consumption, the average household is very sensitive to price changes, and therefore, any monopoly on these products is indeed a rent provider, and therefore, should be disbanded.

And apparently, it appears to be the case. The average Moroccan household are quite sensitive to any price changes (which were quite in an upward trend, it should be pointed out). Without dipping into fancy theories, the sole fact that nearly half the annual income is devoted to consumption (just to maintain bodily functions going on, roughly speaking) gives a pretty good idea about how consumption might change function of price changes.

In essence, the profit margin these companies are making –for the consumption goods at least- are more part of a rent profit –sucked up from the consumers’ surplus.

In these conditions, a penalizing move against those companies is and has to be in the interest of the public. The good news is, cracking down on private monopolies can be a popular policy among small and middle-size businesses (as well as the final consumer). I will devoted another post to this issue, in more rigorous terms, that is.

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