The magnitude and importance of the parallel marketplace imparted an element of unreality to Tanzania’s economic life. The prices set and recorded by the National Price Commission reflected an illusory world of affordability in which even poor Tanzanians could obtain food and other necessary goods. However, the reality was that essential goods were rarely available at the prices set by the government. In the legitimate marketplace, consumers often had to wait in line for endless hours for a trickle of basic items and, even then, went away empty-handed. Those who could afford to do so then made their way to the parallel markets that made those goods available at higher prices that went unrecorded. The most visible feature of the economy during this period was that goods scarcities were an omnipresent feature of daily life. The informal marketplace that arose to remedy these scarcities was a constant and painful reminder of the shortcomings of the government’s economic policy.
Corruption
The emergence and growth of the parallel marketplace changed the lives of Tanzania’s public officials in two ways. The first was that it provided an incentive for corruption. Public officials had a special advantage over ordinary Tanzanians in that they could more easily augment their incomes by becoming corrupt. This provides the best starting point for an understanding of Tanzania’s endemic problem of corruption: it arose as a coping mechanism that enabled public officials, in contrast with ordinary Tanzanians, to augment their incomes. Tanzanian political scientist Gelase Mutahaba has shown the extent of Tanzania’s public sector wage problem.
The period 1975–1985 was a period of uninterrupted real wage decline. Although the situation was not very different in most of Sub-Saharan Africa, with most countries experiencing double-digit real wage declines on an annual basis, Tanzania’s decline was more drastic than most other countries apart from those experiencing political instability. Average basic salaries in the public service provided only one-fifth of the purchasing power of equivalent salaries in the 1970s.11
Civil servants who could find ways to extract rents from the citizens they were expected to serve—and this was practically everyone from primary school teachers and police officers to high ranking customs officials—began to seek bribes for their services.
The more consequential outcome of parallel markets was their tendency to transform public officials from advantaged consumers to parallel market entrepreneurs. It did not take long for the more entrepreneurial officials to realize that they could earn generous profits by participating on the supply side in the parallel marketplace and that their status as public officials afforded special advantages. One was that the gains from corruption provided a source of start-up capital; another was that the mantle of a government position provided a measure of security from official detection and sanction. These advantages made it possible for public officials to leverage their way into a wide variety of business arrangements with the parallel market entrepreneurs who actually bought and sold goods. The mechanisms for their participation in the parallel marketplace ranged from hidden partnerships with business owners who needed official protection to various forms of economic straddling by close family members. Whatever the mechanism for involvement, the outcome was the same: a certain portion of Tanzanian officialdom began to evolve in the direction of becoming a profit-seeking as well as rentseeking class.
For large numbers of public officials, rent-seeking behavior was only the first step in a longer and more far-reaching process of social mutation. What began to emerge in Tanzania during the 1960s and 1970s was a stratum of public sector officials who not only were able to augment their incomes by engaging in corruption but were becoming parallel market entrepreneurs in their own right. This transformation, at first gradual and then more rapid, is fundamental to understanding the Tanzanian political economy since the 1980s. The country was moving steadily toward a tipping point in its economic history. The first step was rent seeking, in itself the use of official position as a basis for income-maximizing behavior. The next and larger step in the process was for a portion of Tanzanian officialdom to wedge its way into the parallel economy as a full-scale entrepreneurial element.
This metamorphosis is fundamental to understanding Tanzania’s peaceful transition to a market economy. Once it became apparent that high-ranking officials could augment their incomes, sometimes greatly, by functioning as entrepreneurs in the parallel economy, Tanzania’s scarcity problem and the vast parallel marketplace to which it gave rise underwent a mutation. It is not possible to fix a precise date for this mutation. Its result, however, was that, at a certain point, a growing portion of Tanzanian officialdom had a deeper economic interest in preserving and even expanding the parallel marketplace than in resolving the conditions that caused it. Because of their rent-seeking skills, the most entrepreneurial officials were never much affected by the failings of the statist system. Indeed, so long as an important portion of their income derived from their ability to rent-seek in the statist economy so that they could profiteer in the parallel economy, they had a stake in maintaining both.
Profit seeking changed the cause and effect relationship between economic policy and scarcity. At first, Tanzania’s endemic shortages were the product of policy choices that resulted in poor economic performance. Before long, however, scarcities could not be explained as the unanticipated consequence of a well-intentioned but flawed set of economic policies. When it became clear that scarcity in official markets made for large profits in parallel markets, the public officials who participating in parallel markets had no economic interest in resolving the scarcity problem. The country’s failed economic policies became a matter of indifference or even a basis for wealth accumulation.
There was an ongoing dynamic of change at work in this process, however. As public officials deepened their involvement in the parallel marketplace, their economic interests underwent a further change. As rent seeking evolved into profit seeking, the presence of the state sector became a limitation on the accumulation of wealth. At a certain point, parallel market entrepreneurs stood to gain a great deal more if they could transform the official economy into a market economy where they could conduct business activities openly and expand them in scale. This change offers an important lesson in the dynamics of Tanzanian development. At first, public sector officials participating in the parallel economy had a stake in the preservation of the official economy because the scarcities it created raised the prices they could charge in their parallel market activities. As this stratum of officials developed into a more and more robust entrepreneurial class, however, the parallel marketplace, which at first had provided an important opportunity, became a constraint on their ability to expand and diversify their economic activities. The state economy now stood in their way.
This explains why so many Tanzanian public officials were at first opposed to economic reform and then began to welcome it. By the mid-1980s, many members of the political-economic oligarchy began to understand that they could accumulate greater wealth by extending their profitable activities to economic areas still dominated by the state, such as large-scale manufacturing, commercial real estate, and retail trade. To take over these areas of the economy, however, the governing elite needed to institute reforms that would legitimize such entrepreneurial activities. The tipping moment arrived when a sufficient number of Tanzanian entrepreneurs, many of whom had their start in the parallel economy, were ready to spread their wings by investing their resources in legitimate retail and productive enterprise. At that point, the presence of large-scale state enterprise was an obstacle in their evolutionary path. Liberal economic reform was the political precondition for illicit entrepreneurs in the parallel marketplace to become legitimate investors in large-scale enterprise.
What had begun as corruption for the purpose of supplemental income had led, in a series of stages, to the mutation of an entire social class. The first step in that transformation was for corruption to become the basis for concealed entrepreneurial participation in the parallel economy. The final step was for corruption to become the source of investible wealth that would make it possible for the highest-ranking members of the oligarchy to assume a dominant place in a legalized