Relations between govt and business

Who should be consulted first when you want to plan the economic development of a country? It is the economist, of course. Is a country that has the brightest economists likely to be the most prosperous? Not necessarily.

From the 18th century, when Adam Smith published his epoch-making ‘The wealth of Nations’, the Anglo-Saxon countries of the United Kingdom (UK) and the United States (US) have produced the brightest and most influential economists.

After Adam Smith, came David Ricardo, John Mill, Alfred Marshall and John Maynard Keynes—all British.

Thereafter, the US took the first rank in breeding and rearing world class economists. Most of the Nobel prizes in economics have been won by American professors.

Apart from the Anglo-Saxon countries, Austria and Sweden have produced first class economists. I have in mind Hayek of Australia and Myrdal of Sweden.

Japan, China and newly industrialised countries of the Far East may not have produced great economists and may not have created systems and ideas which have had world class influence.

Yet, at the moment, it is the countries in that part of the world that fare best in the global economy.

The 2007 and 2008 financial meltdown, which started in the US and spread to Europe, left unscathed economies of China and the newly industrialised countries of the Pacific Rim.

Keynes was right. To be a first class economist, it is not enough to be just well-versed in economic theory.

You must know in-depth related disciplines such as mathematics, history, government psychology, sociology and philosophy.

To try and understand why the Asian countries outpaced African countries in the development race, we must compare many facets of societies in those countries and in Africa—what nature of government, what relationship was there between government and business.

We must compare the extent to which their cultures were more development friendly than African cultures.

In the published studies of North East Asian countries of South Korea and Taiwan, we notice for most of the period after 1960 that they had strong and stable governments.

These governments established close partnerships with the business community. The State was the senior partner.

They had very clear economic policies—to hell with laissez faire. The State was going to formulate policies in which business was going to operate. Foreign Direct Investment (FDI) was limited to a few sectors.

Foreign technology was bought and finance was borrowed. Multinational equities were held at arms’ length.

South Korea’s policies favoured big industries such as shipping and automobile while Taiwan believed in small to medium scale industries.

The technocrat was a valued person where as rent seekers were kept at bay. Rent seekers are those businesspeople who try to earn more income not by producing more goods and services but through obtaining special favours.

Expertise of any sorts—engineering, managerial or economic—won’t achieve much unless they operate within institutions which are focused on development.

We learn that in some countries, investors are issued a licence to start operating within a few days where as in others, months elapse because of bureaucratic red tape or corruption.

A government that wants to encourage private investment, whether domestic or foreign, must purge itself of these cobwebs which slow down movements.

A culture in which people always put their rights above their duties, development will be tardy. People may be entitled to higher pay, but should they press for this when the economy as a whole is unhealthy and when shortages of fuel and forex are forcing some businesses to close while factories dismiss excess labour?

It is a lucky country where members of the elite live by the philosophy: “Not my rights at any price but my duties at any cost.”

In such a country, people will press for higher rewards when economies are experiencing higher growth rates in gross domestic product (GDP).

If you obtain substantial increases when the economy is quasi-insolvent, you are snatching bread from a poor person’s mouth somewhere.