The Zambian cabinet recently approved a flat tax of K0.30 ($.025) per day for all WhatsApp internet calls and other voice over data services much to the displeasure of the general populace.
According to them, the justification for the tax was to protect jobs in the Zambian telecoms industry as the bypassing of traditional calls in preference for internet calls by almost 80% of the population was very detrimental to the economic viability of the three telecom companies in the country.
Much of the general populace including some well-known policy analysts were livid with the move which became a trending story on Facebook and Twitter. I was angry too and in the heat of the moment, I wanted to take my emotional outbursts on Facebook. However, I stopped in my tracks and told myself to relax and think. There must be a line of thinking about this topic that I might be missing, I thought to myself. Maybe the government is onto missing noble and just missed a few steps along the way. I began to think.
In due course and armed with some basic research, I penned down this little story on Policy making, Blunders and Learning in a supersonic dynamic world. From entertainment, manufacturing to banking, our world has changed a lot over the past decade or so. I would be within my right to state that our world has seen more changes the past two decades than over the prior 50 years preceding it, and all this just feels like we are just starting. The scope, scale and speed of change has just been amazing.
Technological advancement has been at the centre of these changes, it has changed the way we eat, play, interact, study and work. However, for this particular article, my interest lies more in how advancement in information and communications technology has changed the fundamental fabric of how economies operate and the inevitability of a policy shift with regard to taxation and regulation.
This article will give a snapshot review of some technological advances that are rapidly coming on board and changing the overall status quo. Some companies have become extinct faster than the dinosaur did, governments have seen their revenues shrinking even while the economic pie gets bigger (a paradox) and curiously, workers all over the world are been offloaded on the street. The current textbook on economics is unable to explain this phenomena.
The effect of technological advances which is technically referred to as Total Factor Productivity in Economics has been a double edged sword; while it increases growth and hence value in the economy, it’s also responsible for sending millions of people on the street as jobs become highly automated. The current wave of change is leaving many economic models outdated in their wake leaving many Economists and Policy makers dumbfounded. This has led to an era of policy blunders or simply the worst of them all; Policy inaction. It has simply become so hard to get it right the first time.
The current era of innovation has brought about voice over data services, an innovation that allows consumers to make calls through a broadband internet connection thereby bypassing traditional calls in the process through applications such as Viber, WhatsApp, Skype to mention but a few. This has wreaked havoc on an entire industry that wanted to sit on its laurels, and has in a way led to the death of the SMS (short message service). Companies that have been unable to innovate are following the same route as the SMS which in turn has had negative ripple effects on the greater macro economy sending thousands of employees on the street and affecting government taxation globally.
It was with this rationale that the Zambian cabinet would introduce a flat tax of K0.30 per day on internet calls. Wrong move! This was in my opinion a policy blunder. I would have liked to get into the details and schematics of the policy but that’s a story for another day needless to say a local think tank CTPD has provided a thorough analysis on the same and I highly recommend their report.
Then we have the banking sector that has been coming up with marvel innovations over the last two decades. From internet banking, mobile banking to intelligent machines and other apps able to offer a seamless banking experience; an entire industry has been transformed. Some roles are dying at the speed of light while others are being created but the overall conclusion is an industry growing in value but not significantly adding any human labour and in some cases increased value moving in tandem with shrinking labour.
This is a nightmare puzzle for Economists and policy analysts. Doesn’t Basic Economics teach that increased production hence value will always result in increased employment? Well, am of the humble opinion that we need new Economics books for the new information age because the rules of the game have changed and have changed in big way.
Then we have the so called platform companies like Facebook, Twitter and YouTube to mention but a few that have wreaked havoc on the media, retail, traditional advertising and entertainment industry. On the one hand, they have led to increased connectivity but they have also made the marginal cost of information almost zero (another double-edged sword). It’s a situation that has seen many media companies world over change business models or file for bankruptcy. There is also the little complication of understanding how these platform companies make money as evidenced by the senate hearings of Mark Zuckerberg, the CEO of Facebook.
In light of the foregoing, it can be seen that the value creation process in economies has fundamentally changed which has made tax policy formulation a serious headache. Should the government for example come up with an ATM Tax? To protect jobs or compensate those that have lost jobs? On face value, these seem like ridiculous questions. However, in the offices of policy analysis and formulation, these are hard pressing questions that need to be answered optimally in light of societal benefits and costs.
Optimally in the sense that an ideal policy should always strike a balance between society and industry. Do we let society lose out while industry and its few shareholders (relatively) thrive? Or do we tilt policy towards more benefits to society while industry incur the losses?
None of the two scenarios postulated above are optimal. The former leads to growth on paper without any significant reduction in poverty and the latter leads to anaemic growth or no growth at all. Ideally, you want growth that is more inclusive; that is, growth on paper that is translating into real improved standards of living for the country’s citizens. It’s imperative therefore that tax policy formulated should endeavour to find that proverbial “sweet spot” that balances the needs of society and industry. A technical equilibrium point at which no one party can be made better off without making the other party worse off.
It can therefore be seen that policy making in particular tax policy has become a very precarious undertaking in which relevant stakeholders can easily miss the “sweet spot” and consequently implement blunders with far reaching effects on the economy. However, policy blunder is in my view a lesser evil than policy inaction in our current era. It enables the ability to learn and quickly adjusting the parameters. Consider it the phase of a little child learning how to walk; the child simply has to get at it and eventually before any one knows it, they are busy running around the house. Same with tax policy making, the rules of the game have changed so much such that it’s very difficult to come up with an optimal policy with one shot which is the ideal case.
Blunders then should always serve as a learning point in which tax policy is always monitored and being quickly readjusted to fit the parameters. It’s imperative therefore to applaud the little efforts of policy makers who are working under extremely challenging conditions. But more importantly, let’s put the best ideas on the table to help them come up with optimal policies that are in the best interests of everyone in society. There is more wisdom in contributing value than pointless critiquing. To the policy makers, there is no shame in admitting a blunder when it happens sometimes, the gist of the matter is in quickly rising from the failures. There is need for more flexibility, intellectual curiosity and agility and open-mindedness. It’s all about finding that “sweet spot” as quickly as possible.
The author is an Economist, Writer and a Corporate Executive. All views expressed in this article are solely mine and do not represent the views of my employer, church and any other organisation am affiliated to.