The Role of Incentives

If what a person gets does not depend on the price he receives for the services of his resources, what incentive does he have to seek out information on prices or to act on the basis of that information?

If your income will be the same whether you work hard or not, why should you work hard? Why should you make the effort to search out a buyer who values most highly what you have to sell if you will not get any benefit from doing so? If there is no reward for accumulating capital, why should anyone postpone to a later date what he could enjoy now? Why save? If there is no reward for maintaining capital, why should people not dissipate any capital which they have either accumulated or inherited?

Is Kenya heading towards a command economy where prices are prevented from affecting the distribution of income? Where the government determines allocation of scarce resources as opposed to supply and demand?
Are we heading to a society ruled by Marx dictum: “to each according to his needs, from each according to his ability.” Can our government run a pure command economy where income is completely separated from prices?

Government Intervention in Free Enterprise

Kenyan government has made some financial decisions that make me question what end they are trying to achieve.

It should be common sense to do away with non-performing, non-competitive enterprises and support those that are competitive. It should also be common sense to buy from the cheapest source and sell to the dearest. Yet this is not the case. We have unreasonable restrictions on what we may buy and sell, from whom we may buy and to whom we may sell and on what terms.



“What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage….In every country, it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pain to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of great body of people.” Adam Smith –Wealth of Nations. Adam Smith’s words are true now as they were then.



Any productive/progressive nation understands its Strength, Weaknesses, Opportunities, and Threats. The nation encourages its citizens to concentrate their efforts on those activities that the nation has a clear competitive advantage or where there are opportunities. Since a nation can not be great in all enterprises; it is vital to be productive in an enterprise that will provide means to purchase those things that the nation needs and can acquire them from others at a low cost than attempting to produce them in-house.



Government decision to reopen Pan Paper does not make economic sense. Why:

· Paper from other countries will continue to be cheaper;

· We do not need further deforestation; and

· National resources could have been put to better use.



Why should the government spend billions of shillings to re-open a company that can not compete with other foreign enterprises?



I sometimes question government ban of particular items such as sugar ban. If Brazil is able to manufacture sugar, ship it all the way here and still sell it cheaper than local sugar companies; I fail to understand why the government should protect enterprises that are not competitive. “Suppose Brazil subsidizes their sugar. Who is hurt and who benefits? To pay for the subsidies the Brazil government must tax its citizens. They are the ones who pay for the subsidies and the Kenyan customer benefits.”

Currently we have oversupply of milk; I would rather see the government subsidize milk prices for export than spend the same amount to reopen Pan Paper.