Why Bottom-up economic model is a tired joke
By Maina Wachira and John Kamau
In his owns words, Deputy President William Ruto (pictured) says his bottom-up economic model is a blueprint targeting to promote investments of ordinary Kenyans and empowering them financially so the country can generate taxes to spur the economy.
While responding to critics of his “Hustler's economic model”, a philosophy that is a cornerstone of presidential campaigns, Ruto argues the trickle-down approach has failed because it bred cartels by aiding patronage and cronyism that that benefit a few.
He argues that his bottom-up economic framework is anchored on a programme that promotes investments and financial instruments that target millions who are unemployed, hustler enterprises, farmer groups and fishermen.
The Deputy President has made his supporters to think the model is the solution to bridge the widening gap between the rich and the poor.
In his numerous rallies, Ruto is vocal that the trickle-down economics has been practised in Kenya for a long time and it is time to move to the bottom-up approach which will bring onboard all Kenyans.
But a critical analysis of the model simply exposes it as just hot air
Consider this: If you give low income trader or what he calls mama mboga say Kshs.20,000 to improve her business, she will most likely spend Kshs5,000 on her business and the rest of money will be used in sorting out other bills.
The Kshs5,000 put in the business will not improve her business but it will at least give her reprieve for a few days.
Why is this so? It is so because mama mboga understands the basic laws of supply and demand and her supply is dictated by the demand from her customers.
There are four basic laws of supply and demand namely:
(1) If the supply increases and demand stays the same, the prices will go down.
(2) If the supply decreases and demand stays the same, the prices will go up.
(3) If the supply stays the same and demand increases, the prices will go up.
(4) If the supply stays the same and demand decreases, prices will go down.
What Ruto is proposing with his bottom-up model will trigger the first law of supply and demand.
Many people will register as small business people and get the promised loans.
They will then try to do business but then they will be too many and doing the same business, a perfect case of supply overwhelming the demand.
Business is about demand and supply and demand determines the supply for business owners.
This is one fact the Ruto’s allies (Tangatanga) have deliberately ignored as they have not told us how their will get customers for the hustlers.
In the business done by hustlers, you cannot talk of export as the goods are consumed locally.
So how will the hustlers’ lot improve with the loans they are being promised; will Kenyans eat more so as to buy more from mama mboga?
Will they take more trips on bodabodas so as to support the bodaboda guy?
Will they buy more mitumbas (second hand clothes) and have haircut more often.
Very unlikely but still the problem can be sorted by expanding the middle class.
The middle class is the consumer class, people with disposable income and buy from both the upper class and the lower class.
How can we expand on the middle class?
Not very difficult, the household and other products sold by the hawkers are imported from China and elsewhere.
These products can very easily be manufactured in this country, all that is needed is factories to produce these products and thousands of jobs will be created.
But if the jobs done by hustlers were so lucrative and all that was lacking is capital, the rich people in this country could have put their money in these ventures.
We would be seeing the rich building stalls and employing mama mbogas, setting up stalls to sell mitumba and what have you.
But they don’t do this because there is no much money to be made in this sector.
The exception could be in mitumba business where the rich import and sell to the hustlers who then hawk them.
The jobs which the hustlers do are in the margins and what is needed is to get some of these people from the margins to the mainstream.
It can be done and other countries have done it.