| Tanzania replaced the market economy it inherited at independence in 1961 with a unique form of socialism known as “Ujamaa” designed under the leadership of Julius Nyerere. The 1970s and the 1980s were a period of economic crises, with average annual growth rates of the country's GDP falling 5 percent between 1965 and 1973 and 3.6 percent between 1973 and 1983. Public large scale and small- and medium-sized firms (SMEs) performed badly under “Ujamaa” from 1967 to 1985. This dissertation assesses why the socialist approach to promoting SMEs failed.; Average export growth rates declined from 0.9 percent to negative 4.6 percent annually during the same period, limiting the capacity to import. The declining capacity to import generated increased private small firms' production to fill the gap in imported goods supplies. This rise in private SME production explained the increase in credit unions as alternative sources of capital since state banks denied loans to private SMEs in favor of public SMEs. Given women's subordinated status, women-owned private SMEs suffered most in resource denial. However, private SMEs circumvented public policy blockades, including colluding with public officials in obtaining public resources.; Despite experiencing similar economic infrastructure problems, the private sector outperformed the public sector though public enterprises had greater access to resources. The explanation lay in the moral hazard effect of public policy. Moral hazard, engendered by government over-subsidization of inefficiency and micro-management of public SMEs accounted for the unsatisfactory performance of SMEs. State over-control of public enterprise operations truncated executive discretion to the extent that management stopped seriously weighing benefits against costs of decisions.; Because of unrestricted government bail outs of loss-making public firms, executives further cared less about the consequences of their decisions. Hence, state-owned SMEs and cooperatives ran financially aground. As a broad framework for promoting SMEs, the “Ujamaa” approach was very practical for socioeconomic development given the prevalence of poverty in the country and the inability of the majority to raise business capital individually. Yet with management failures in undertaking the approach, Tanzania returned to a market economy in the 1990s. |
