Economic system; an economic system is a set of organized principles that regulate the production
and distribution of goods, services and productive factors. To explain this differently, the system
is a structured collection of guidelines used to promote the economy’s proper functioning.
Economic systems are necessary to ensure functionality. The most commonly known systems are
capitalism, communism and socialism.
Most of these systems also address political aspects but this definition will be focused on the
economic side of each. Economic system is a set of organized principles that regulate the
production and distribution of goods, services and productive factors. In this case, the analyst is
researching the country’s current economic system by analyzing the dynamics and processes that
regulate the country’s economy.
Command Economic System; In a command economic system, a large part of the economic
system is controlled by a centralized power. For example, in the USSR most decisions were made
by the central government. This type of economy was the core of the communist philosophy.
Market economic system; in a free market economy, firms and households act in self-interest to
determine how resources get allocated, what goods get produced and who buys the goods. This is
opposite to how a command economy works, where the central government gets to keep the profits.
There is no government intervention in a pure market economy (“laissez-faire“). However, no truly
free market economy exists in the world. For example, while America is a capitalist nation, our
government still regulates (or attempts to control) fair trade, government programs, honest
business, monopolies, etc. In this type of economy, there is a separation of the government and the
market. This separation prevents the government from becoming too powerful and keeps their
interests aligned with that of the markets.
A mixed economy is a combination of different types of economic systems. This economic system
is a cross between a market economy and command economy. In the most common types of mixed
economies, the market is more or less free of government ownership except for a few key areas
like transportation or sensitive industries like defense and railroad.
However, the government is also usually involved in the regulation of private businesses. The idea
behind a mixed economy was to use the best of both worlds – incorporate policies that are socialist
and capitalist. To a certain extent, most countries have a mixed economic system. For example,
India and France are mixed economies.
ECONOMIC SYSTEM IN TANZANIA SINCE INDEPENDENCE (1961):
Market economy (capitalist model)
When Tanzania became independent in 1961, it inherited a colonial market economy
(capitalism). The country’s economy was performing relatively well, but the benefits of the
economy were felt by a small group of individuals, mainly English and Asian businesses who had
the major share of the economy. This market economy was a capitalist model whereby major
means of economic production were in the private sector. Subsequently, the Tanzanian
government did not have the authority to intervene even when market forces failed, yet the state
wanted all citizens to experience economic benefits in a newly independent state (Ngowi, 2009).
When it became clearer to the state that it was not possible to realise its development agenda of
poverty reduction and bringing equality amongst the people through the same market economy,
Ujamaa - a state-led socio, political-economic ideology - was seen as the right strategy to drive the
government development agenda (Cornelli, 2012; Kaiser, 1996 in Ngowi 2009).
Therefore, after independence Tanzania concentrated on building an independent nation. The
economy continued to be mainly within the hands of the British colonial masters and Asian
businessmen, mainly Arabs and Indians. Industries, plantations, banks, mines and relatively large
commercial activities continued to be under the British and Asians. The economy continued to be
basically a market-oriented one with private sector capitalism dominating.
As expected from the key tenets of capitalism that include private ownership of major means of
production and market oriented economic practices, a number of imbalances were observed by the
mid-1960s. The political decision to embrace capitalism after independence led to a number of
market failures as the state did not intervene in the economy. The expected “fruits” of
independence were not realized by the majority of people. Poverty continued to dominate and the
common man and woman did not see the benefits of independence from economic point of view.
They continued to toil for the same colonial masters they had toiled for before independence. This
unfortunate situation was observed by the political leaders of the day. A new political decision to
address the imbalances brought by capitalism was made. The decision has had many and farreaching impacts in the economic development and change in the country’s economic development
and change process.
Command Economy (Ujamaa strategy 1967)
Under the Ujamaa strategy, the state became responsible in all economic affairs; it became a
real developmental state as argued by Mkandawire (2001) when it became a “dirigiste
economy”, planned and “governed the markets” for the purpose of effective accumulation for
industrialisation. At this stage, the state became the defender of public order and public property
rights responsible of social and physical infrastructure and macro-economic executive. The state
also assumed the roles of economic planning, regulator and to some extent, entrepreneurship,
and the private sector disappeared (Sandbrook, 1995).
In ujamaa strategy, the political decision to practice centrally planned economy with public
ownership and government intervention did not work well. The nationalization of the productive
sectors of the economy has been among the major reasons for poor economic development in
Tanzania. The hither-to private
State owned and managed enterprises became public enterprises. They were typically
characterized by inadequate managerial and technical skills; embezzlement; capacity underutilization; reliance on government subsidies; non-payment of taxes; over-employing; protected
from imports; and monopolistic in nature. As a result, they became loss-making entities that
depended on government subsidies for their survival. As public enterprises, they did not pay tax
to their owner either. It is not surprising therefore that most of these SOEs came to a virtual verge
of collapse. They became heavily indebted and employees were now and then sent into long
unpaid leaves.
The failure of Ujamaa as an economic policy led to economic and structural reformation starting
in the mid-1980s following fierce pressure from the donor community and the Bretton woods
institutions; thus, Tanzania returned to the market economy which is a neo-liberal approach
driven by market forces.
The mid-1980s epoch to date (Tanzania under Mixed Economy)
In this model, Tanzania’s political decision has been to embrace the capitalist economy which is
market-oriented and private sector led. The relatively free interplay of the market forces of supply
and demand, and correctly so, is now the major defining characteristic of the country’s economic
development and change.
The epoch is characterized with major reforms. Among the elements of reform in Tanzania include
privatization of the SOE (State Owned Enterprises) that were nationalized in the aftermath of the
1967 Arusha Declaration; relaxation of entry restrictions in virtually all economic sectors;
deregulation in various industries; abolition of price controls; independence of the central bank;
elemi- nation of import licensing; removal of: foreign exchange-, exchange rate- and interest rate
controls; easing of controls over mergers and acquisitions (M&As); public sector service reform;
and political reforms in form of allowing multiparty democracy.
Among the key impacts of the reforms include substantial inflows of foreign direct investments
(FDIs) in form of mergers and acquisition (M&As) of the former State Owned Enterprises and
Greenfield Investments and their associated benefits. Acquisitions of the former State Owned
Enterprises that are under divestiture, among other things, relieve the state from the burden of
owning and managing these enterprises. Such burdens include payment of subsidies and lost tax
incomes, all of which are of critical importance in the economic development and change in the
country.
Foreign direct investments (FDI) benefits include direct and indirect and often better paying
employment opportunities; reducing investment capital gap; introducing up to date and state of
the art technologies; superior managerial, leadership and marketing skills; increasing government
revenues through privatization proceeds, fees, concessions, dividends on profits, and taxes;
supporting community social development projects; forward and backward linkages with the rest
of the economy and generally increasing to the supply side of quantity and quality of goods and
services in the economy.
The current capitalism in Tanzania differs somehow with the one in 1961 – 1967 epoch. Among
the differences include the fact that the earlier one was a direct continuation of the colonial
system. The colonial masters had more economic power in terms of ownership of major means
of production compared to endogenous. It can be argued further that the former capitalist system
was involuntary and imposed to Tanzania.
The current capitalism however involves endogenous in the ownership of the major means of
production. As opposed to the earlier one, the current capitalist system is a result of deliberate
decisions by Tanzania’s political system.
Conclusio:
Tanzania has experienced three major epochs in its economic development and change process
from the 1961 independence to 2019. Political leadership has been the key factor in creation of
the epochs. It has been the main defining factor of the nature and paths of economic development
and change in each of the epochs. Contrary to the generally held and simplified views, it is more
than the political leadership and decisions in Tanzania that have impacted and influenced
economic development and change in the country. In this work, some political leadership and
decisions outside and inside Tanzania have been identified as among the key factors that impact
economic development and change in the country. It is recognized however that there are other
factors than political leadership that have impacted, are impacting and will be impacting economic
development and change in Tanzania, as is the case for many other countries.
References:
Ngowi HP (2005). Institutional Reforms to Attract Foreign Direct Investments (FDIs) as a
Strategy For Economic Growth: What Has Tanzania Done?” In Globalization, Technology, and
Sustainable Development Series, Vol. 1, 2005 Emerald Publishers
Kaiser PJ (1996). Structural Adjustment and the Fragile Nation: The Demise of Social Unity in
Tanzania. J. Mod Afr Stud. 34(2):227– 237.
UNDP (1990). Human Development Report 1990, Oxford University Press, New York and
Oxford