Private sector and stagnation

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or decades, Malawi has struggled to find lasting solutions to the ever-increasing challenges that hinders the social and economic advancement of its citizens.

These socioeconomic challenges haunting the nation include deteriorating health delivery systems, poor education standards, high unemployment and rising inflation.

This phenomenon is not only exclusive to Malawi, but also affects many third world countries which have either stagnated economically or registered minimal growth. Simply put, the majority of citizens in the so-called developing nations are lacking.

One would suggest a million reasons, with corruption probably top of the list, why we found ourselves in this sorry state. However, governments have promised and tried to offer solutions.

Rarely have the results been realised, but most countries can point at anything tangible.

Against this background, however, there is still one interesting and common phenomenon in these developing countries: A trusting citizenry that strongly believes that governments will solve all their socioeconomic challenges.

Why is this so? Simple: governments are the biggest players in Third World economies. They are the biggest suppliers and buyers of goods and services, the biggest employers for the citizenry, etc.

However, this is rarely the case in the developed world.

For the sake of perspective, while governments are the biggest employers, Joshua Wright’s article, Comparing Private and Public Sector Job Growth, shows that “for every government job in America, there are 4.7 jobs in the private sector”.

Now, one would ask: Are governments that are bigger than the private sector the reason for our socioeconomic stagnation?

Arguably, yes.

It is common knowledge that countries such as Malawi collect fewer taxes than they would if their industries were bigger than their governments.

Now, how does this concept of a smaller private sector, fewer jobs created and limited taxes collected adversely impact our socio-economic advancement?

For starters, respected American economist Milton Friedman, who received the Nobel Memorial Prize in Economic Sciences in 1976, once said: “to spend is to tax.”

One of government’s primary duties is collecting money from the citizenry (in the form of taxes) supposedly to enhance the taxpayers’ socio-economic well-being.

Friedman’s logic is that governments can only spend when they collect taxes. With our shrinking industries, how much do governments such as ours collect in taxes to meet the ever-increasing socioeconomic needs of the rapidly growing population?

Obviously, not enough.

However, for years now, it appears that low-income governments have embraced debt as an easy alternative way of financing activities.

Consequently, this has led to high and unsustainable levels of sovereign debt—the total sum a government owes institutions and individuals.

According to the 2020-2021 Mid-Year Public Debt Report released by the Ministry of Finance, Malawi’s public debt stands at 54 percent of the national GDP. At this pace, this is high and unsustainable.

With such a debt burden, governments spend more on servicing loans than initiatives to tackle the prevailing socioeconomic challenges.

As such, one needs not over-emphasise the importance of having a vibrant private sector that is much bigger than the government–as is typical of most developed countries.

With this, governments are bound to collect more taxes and resources for addressing socio-economic challenges.

From the foregoing discussion, there is an urgent need for Malawi and other countries left behind in the race to end poverty to create an enabling environment for the private sector to thrive, grow and pay back.

A thriving and bigger-than-the-government private sector has been one fundamental missing piece in the country’s fruitless fight against socioeconomic stagnation.