and South and Southeast Asia as well as in much of sub-Saharan Africa. Although Tanzania gained global acclaim because of the idealistic approach of the founder-president, its development policies during the decades following independence were closer to the framework prescribed by the development economists. The president’s ideas stressed rural development through communal self-help at the local level as a means of improving the socioeconomic conditions of the poorest Tanzanians, the small farmers. In reality, the framework Nyerere’s government adopted imposed higher and higher levels of taxation on smallholder farmers to extract the revenues that provided capital and other subsidies for urban industries. Urban Tanzanians, including industrial workers, technocrats, managers, and economic planners, were the winners; small farmers were the losers. There is no great mystery about why the Tanzanian government adopted this strategy: it was acting the same way as countless other governments throughout Africa and other developing regions.
The ISI model derived influence from the scholarly prestige of the development economists as well as from the contagion effect. The development economists’ ideas gained additional influence from their prominence in the economics curricula of many of the most prestigious universities in North America and Europe. Students from the developing world were routinely channeled into courses on development economics so that they could better assist with the development of their countries. In addition, the ISI intellectual and strategic framework was operative throughout the major development institutions, such as the World Bank and numerous bilateral aid organizations. The influence of the development economists was so great that very few developing countries sought to give a higher priority to agricultural development than to industry. One of the most powerful sources of attraction was the belief that ISI offered a shortened path to industrial prosperity. Western history had taught that an industrial revolution might take several centuries to accomplish and that it would only come about with a high cost in social misery. The development economists sought to demonstrate that their strategy could shorten the timetable of industrialization to a generation or less, and at a far lower human cost.
The intellectual dominance of development economics explains why Tanzanian leaders adopted the ISI approach, but it does not explain why they kept it in place as long as they did, long after its harmful economic effects had become painfully visible. One reason is the absence of a compelling theoretical alternative. In its approach to developing countries, the economics profession did not begin to undergo a major paradigmatic shift until the mid- to late 1970s, some fifteen to twenty years after ISI had been firmly set in place in countries such as Tanzania. The World Bank did not produce an alternative formula for sub-Saharan Africa until the early 1980s, with the publication of its famous report, Accelerated Development in Sub-Saharan Africa.22 That report combined an analysis of the shortcomings of the ISI strategy as it had been applied in Africa and offered in its place an alternative, market-based strategy that emphasized free trade. Even then, its recommendations required several years to become the basis for specific policy recommendations by on-site donor organizations.
The principal reason for the persistence of economically harmful policies, however, was political. A downward economic spiral does not affect all social strata equally, and the political elites of many developing countries were able to insulate themselves from the environment of economic hardship. The economic interest of a country’s political elite is not the same as the social interest of the country as a whole. Tanzania was no exception. Members of the elite were able to enjoy a material lifestyle that contrasted dramatically with the hardships that affected the majority of the population. Through a combination of rent-seeking behavior and legitimate perquisites of power, such as generous fringe benefits and special allowances, members of the Tanzanian elite lived very well. This is the paradox of development first cited by Jonathan Barker in his important early article on Senegal.23 Barker’s paradox points out that reform often depends on the initiative of a class of political leaders whose self-interest lies in a continuation of the existing system, which provides the basis for their wealth and power. This paradox defines the most challenging questions arising from Tanzania’s process of economic reform: not why it began so slowly but why it began at all and why, when it did, it resulted in a successful transition to a market-based economic system.
The following chapters attempt to show that Tanzania’s program of stateled development fostered the emergence of a powerful and entrenched governing elite. The failure of its economic experiment in socialist development gave rise to the emergence of a larger and larger parallel economy, which grew in the vacuum created by the failures of the official economy. As the state industries and bureaucratic agencies that had responsibility for providing essential goods and services failed in their assigned tasks, the parallel economy began to assume this responsibility. By the time Tanzania began its official reform program, in mid-summer 1986, the parallel sector had attained such large proportions that it was almost as large as the country’s official economy and, by some estimates, even larger. Vast numbers of Tanzanians earned a sizable portion of their income in the parallel economy from which they obtained the goods and services they needed.24 Economic liberalization in Tanzania was not a matter of creating a market economy where none existed. It merely involved setting aside the remnants of an official state economy that most Tanzanians had come to view as an impediment to their most promising economic activities.
The distinctive feature of Tanzania’s parallel economy was the involvement of large numbers of public officials. This was Tanzania’s answer to Barker’s paradox. On the eve of economic reform, many members of the governing elite that presided over a socialist state had become private sector actors in the parallel economy. The economic strategy they adopted is commonly referred to as straddling, a term that describes the tendency of families to diversify their portfolio of activities to cope with conditions of stress. Tanzanians in all occupations sought income wherever they could obtain it. For many public officials, this meant finding ways to supplement their increasingly inadequate official salaries by undertaking private economic pursuits. Many civil servants had small gardens or small farms from which they sold food stuffs. Others raised chickens or goats for sale in the parallel marketplace. Some were more brazen and used their official vehicles as taxis or trucks to provide transportation services. Still others operated small business enterprises producing shoes, furniture, soft drinks, alcoholic beverages, clothing, cooking utensils, farm implements, and a host of other goods increasingly unavailable in the official marketplace. Before long, many public officials derived a larger share of their income from their side businesses than from their government salaries, whose purchasing power had shrunk due to the fall in the value of the Tanzanian shilling.
Economic straddling meant that, on the eve of policy reform, many Tanzanians had a blend of economic identities. Some of Tanzania’s most successful entrepreneurs began as public officials, deriving some of their start-up capital and an element of political security from their governmental positions. The parallel economy, however, had important limitations, especially regarding the scale of a family’s informal sector activities. It might be possible to operate a small business selling food items, chickens, or goat meat, but it would be impossible to expand those activities to take over an entire brewery, textile mill, or cigarette factory so long as those enterprises were still official state monopolies. Eliminating the state economy with its numerous monopolistic but unproductive firms represented a pathway for greater wealth, not a constraint. This was the great secret to the success of Tanzania’s liberal reforms. Much of the social pressure that drove privatization came from state officials whose positions in the government afforded them special advantages in the early privatization process.
Corruption played a major role in all these transformations. It originated in the declining purchasing power of public sector salaries and set down its roots in the countless opportunities for bribes afforded by the country’s all-pervasive system of state regulations and controls. Corruption began as an income supplement for hard-pressed public officials seeking to maintain or augment their real incomes. Over time, however, it morphed into something with far greater long-term economic consequences: it became a source of investment capital in the rapidly growing parallel sector, which had arisen in response to the scarcities of goods in official markets. Before long, public officials had become some of the country’s most active participants
