The Parallel Economy
Scarcities of essential goods generated their own remedies in the form of parallel markets, and a vast parallel marketplace arose to supply goods that were otherwise unavailable. The principal economic difficulty with the parallel marketplace was high prices, reflecting not only scarcity but the element of risk inherent in illegal transactions. The growth of these markets had two immediate effects. The first was to discredit the official economic system by calling attention to its failures and shortcomings. A government-sponsored chain of retail stores, Cooperative Societies of Tanzania (COSATA), became an object of ridicule for empty shelves with posted prices for goods that were unavailable. The social effect of the parallel marketplace was to accentuate the inequalities between the society’s haves and have-nots.
The social differences between those who could afford to acquire goods in parallel markets and those who could not would generate demoralization even in societies where an ethos of social equality was not present. However, in Tanzania the differences between haves and have-nots became especially burdensome because the president’s philosophy attached such great importance to the idea that all Tanzanians would share the burden of socialist development. The fact that those who could obtain goods in the informal marketplace were often high-ranking members of the country’s political elite made the social discrepancy even more demoralizing. Over time, many Tanzanians became convinced that the president had to be personally aware of the widening socioeconomic gap in their society. Some even came to believe that his public message of social equality was a disingenuous attempt to provide legitimacy for members of his own coterie even though he knew that they were behaving in a socially predatory manner.
As is inevitable in an environment of acute scarcity, inflation eroded the purchasing power of both public and private sector incomes. Yet Tanzanians with positions in the public sector, especially those at elite levels, were in a far better position to ride out the economic storm than those who were not. The upper strata of state officials became a privileged class relative to the economic hardships suffered by the vast majority of Tanzanians. However, the political elite was able to hide much of its wealth from public view. A large portion of the elite’s real income was in the form of benefits that, while not monetary, nevertheless had great monetary value, such as government-provided houses, official cars, expense allowances, and salaries for household staff. National Assembly members received generous per diem payments while attending legislative sessions. Government officials who had to travel—many contrived to do so—also received generous per diem payments, sometimes in hard currency. Since public officials could easily falsify their expense statements, these payments often became an important source of supplemental income.
The more influential members of the political class enjoyed a wide variety of other nonmonetary benefits as well. They could use their positions to obtain government jobs for relatives and friends, business licenses for family members, government contracts for political allies, and special educational opportunities for their own children and those of their political associates. Although these privileges did not count as income, they were an important part of what differentiated membership in the political elite from nonmembership. Many members of the political class also managed to hide their income by sequestering assets overseas, in bank accounts or real property. High-ranking public officials were also able to use their positions to avail themselves of other opportunities not readily available to ordinary Tanzanians, such as overseas travel and education. The highest-ranking members of the elite were able to obtain special medical services overseas and preferred access to other scarce goods and services. These benefits meant that the highest members of Tanzanian officialdom were able to insulate themselves from the scarcities that affected ordinary citizens. The sum total of their privileges helps explain why Tanzanian officials, like those in so many other comparable countries, were among the most reluctant to change the economic policies that they were fully aware were imposing hardships on the majority of the population.
The early pattern of elite inequality in post-independence Tanzania was so well concealed from public view and scholarly scrutiny that it is all but impossible to determine the extent to which inequality may have worsened during the period of economic reform. The country’s socialist ethos and a leadership code that forbade second incomes caused members of the political elite to go to great lengths to conceal their real incomes. Their homes were not generally accessible to the public, and they derived much of their cash income from unrecorded activities such as rent seeking. Public officials could also divert part of their income to the businesses and farms of close family members or political supporters. In contrast to today’s Tanzania, where luxury homes and luxury goods abound, there were far fewer opportunities for the elite to engage in conspicuous consumption. Tanzania during the 1970s did not feature expensive hotels or restaurants; there were no dealerships well stocked with late model Mercedes-Benz automobiles, and no shopping malls offering a glittering array of expensive goods. Many of the most lucrative benefits members of the governmental elite enjoyed did not appear in official figures on income distribution, which were based on salaries alone.
A significant source of difficulty for Tanzanian research has been the tendency for the government’s statistical data to make the country appear closer to the socialist imagery favored by the president than was in fact the case. Critics of the process of structural adjustment sometimes allege that market-based reforms have led to widening social inequality. However, this is difficult to verify since the monetary value of the total package of privileges enjoyed by the governmental elite is not easily quantifiable. Despite Tanzania’s culture of social equality, members of its governing class always enjoyed a material lifestyle far more affluent than that available to ordinary Tanzanians. They continue to do so. But whether—or the extent to which—this income disparity may have worsened during the period of economic reform, or whether it has simply become more conspicuous in the more openly permissive atmosphere of a market economy, remains unclear.
The income gap between members of the elite and smallholder farmers was particularly pronounced. There is a strangely persistent imagery of African smallholder farming as a subsistence economic activity insulated from the up and down cycles of the marketplace. This conception has always been profoundly inaccurate. Tanzanian farmers, like African smallholder farmers everywhere, have participated in the cash marketplace to purchase an array of goods, such as bicycles, radios, wearing apparel, and food items they do not produce themselves, as well as more expensive goods, such as concrete for flooring and galvanized material for roofing. They also needed cash to pay for educational and medical fees, pay local taxes and cooperative fees, and make remittances to urban relatives. As Tanzania’s rural economy deteriorated, cash for all these items became less and less available. For larger and larger numbers of rural Tanzanians, the direction of economic change was reversed; it was a matter no longer of moving from a subsistence lifestyle toward widening participation in the marketplace but of moving from a mixed economic pattern back toward subsistence cultivation as a strategy for economic survival. Where it did exist, subsistence production was the effect not the cause of broader scarcities, as degraded economic conditions drove smallholder farmers to give up production for the marketplace. As this process unfolded, the income gap between smallholder farmers and urban elites widened.
For most Tanzanians, the high prices in the parallel marketplace made the goods they had to obtain there unaffordable. Since price inflation in these markets was inevitable, the tendency for them to substitute for official markets as the source of many of the goods actually consumed on a daily basis accentuated the economic differences between the country’s haves and have-nots. Attempts to gauge the extent of these differences are notoriously difficult because the prices