The Asian miracle: Lessons for policy makers- Part VI

Recent research estimates that growth sustained for at least 15 years can indeed reduce poverty levels for as much as 80% as long as such growth is private sector driven and thus sustainable.

Recent research estimates that growth sustained for at least 15 years can indeed reduce poverty levels for as much as 80% as long as such growth is private sector driven and thus sustainable.

A factor that differentiates the level of development between Asia’s NICs (newly industrialized countries) and African economies has been the degree, and extent of development of private sector as an engine for growth as well as policies designed towards this end.

There is a growing body of research that points to the causal evidence that is overwhelmingly unanimous in suggesting that, economies with dominant private sector record faster rates of economic growth than those that do not.

Asia’s NICs embraced the idea of private sector lead growth strategy as early 1970s.

This was not only a policy but also a national philosophy that was to transform these economies from the backward agrarian economies (true for African economies, then and today!) to faster growing industrial economies.

African economies at the time were experimenting all sorts of failed strategies from socialist to Marxist and now to capitalist economies depending upon which country supported such economies at independence.

This only served to expose to the colonial administration that, African leaders then, and to some extent today, were not sure of the development paradigm that would serve their economies.

Such ignorance was also exploited by many multi-lateral and bi-lateral institutions which filled this knowledge gap by dictating various development strategies for most African economies, although these failed as well.

Sustainable development has to be homegrown, owned, and thus endogenous based on country specific underlying growth fundamental triggers.

Unless such triggers are identified and ambitiously pursued, such an economy is left to develop in a sporadic manner and can not latch into the development phase.

Unfortunately a number of African economies were highly politicized in the name of ensuring entrenchment of a democratic process, as if this on its own can lead to development.

On the contrary, development ensures development of democracy and stability that is sustainable.

The issue of private sector growth as a catalyst for development was based on many economic theories and realities that have been tested overtime.

The assumption here is that, politicians tend to serve temporal interests and a such have no intrinsic incentives to manage government affairs in the manner the private sector would.

Unlike a number of public sector initiatives, private sector does not invest on the basis of instructions, exhortations or pure idealism, nor is it driven by immediate common good, but rather requires predictable and profitable investment opportunities, basic security over property rights, and a fair, stable and predictable tax, regulatory, legal and policy environment.

But for the private sector to be a vehicle for growth and thus development, implies that, the government needs to act and think like the private sector and ensure that constraints to private sector operations are addressed and opportunities available on a fair play.

Without a proper policy, legal and administrative framework, private sector cannot play its developmental role.

Public-Private-Partnerships (PPP) are critical at all stages of a country’s development generally, and private sector in particular, but more so at the nascent stage typical of private sectors in developing countries.

For this partnership to be successful and functional, government bureaucrats have to act and be seen to act and think like private sector prayers.

Such partnership also presupposes that, governments must do much more to create conditions under which private sector will invest including:

(i) Putting in place laws that protect property rights. Such laws must be market oriented, transparent, and effectively enforceable;

(ii) A tax system that raises resources while at the same time encouraging investments and re-investments, and one which does not discriminate against success and honesty;

(iii) A fair market based competition, including elimination of hurdles to market entry, and imposition of financial discipline on firms;

(iv) A framework of sound governance for firms, including protection of all types of shareholders, and creditors;

(v) And, administrative practices that minimizes the scope of corruption and cronyism, and ensures the predictability and stability of business environment.

Governments have to take determined actions in each of the above listed areas, without which other interventions would remain ultimately ineffective.

Governments among the Asian NICs were able to address the above issues earlier on, while their African counterparts remained rhetoric without tangible efforts towards that end, and where they did, it was only in the interest of politically connected enterprises.

The fundamental basis for PPP approach is that, successful development requires the public and private sectors to adhere to the perception of the nation as ‘a corporate’ or ‘business entity’, jointly owned by both the sectors, and working in tandem in pursuit of national goals.

Thus, the private sector forms the commercial and economic arm of the ‘national corporation’ whilst the government lays down the major policy framework and direction and the civil service provides the necessary supporting and ancillary services i.e the civil service provides the service arm of the of the national corporation.

As pointed out in part V of these series, the characteristics of Asian ethics that encouraged hard work, loyalty and diligence, reinforced with entrepreneurial talent, played a major role in the development of a vibrant private sector.

In contrast, a number of African economies’ private sector has neither followed a consistent program nor policy framework.

After independence and down the road to their development, African economies put in place a number of state corporations to steer their development.

Reasons advanced for this approach was the perception that, African upcoming entrepreneurs lacked the skills and resources to participate fully in private sector as agents of change, and that it was therefore necessary to put up state corporations which would fill the gap until such a time as when the African entrepreneurs would be in position to participate actively in the economic process, that the government would then sell (privatize) these to private African business entrepreneurs.

Thus, government corporations played all the roles of private sector in the book. They provided goods and services of all sorts and in the earlier years of their development, they tended to be efficient.

This model of development was common to both Asian NIC and Africa, although African economies held on to these for so long that, political interest took charge.

Political patronage became so serious that, their anticipated privatization was either delayed or hindered by the same political interests.

They were used as political tools to reward interest groups with positions and perks that kept the ruling elite in power.

Even when these corporations were sold, their disposal values were politically determined to the extent that, they ended up being purchased by the same political interest groups who previously benefited from their operations.

Such high level corruption was blessed by the highest leadership in these countries, and their prices were determined with the consent of high and mighty and each group had a stake in the underlying assets being disposed be it financial or stake-holding.

This state of affairs retarded the development of private sector development in Africa, and for some countries, history has not been useful.

Thus, while commenting on Kenya government’s reservations to privatize Telcom Kenya (later privatized, but many questions still abound to date) [Kisero, 2001:12] observed that, “… what may not be in public domain is the complex plot that the forces arraigned against the deal have hatched to kill the deal…what we are dealing with here, is a knee-jerk reaction of powerful interests and power brokers who fear losing control of what has been a valuable source of inexhaustible largesse and funds for political patronage… indeed it is tiny elite of power brokers and cronies of powerful people in the government that is opposing the sale which has for some time now, benefited from the status quo”.

The case in point is a replica of most Africa’s privatization and private sector development challenges.

Public monopoly only served to block the entry of private sector enterprises for quite some time and African governments failed to ensure efficient and effective transfer of ownership of state corporations to the private which would then have ensured the growth of a vibrant private sector that would then have been an engine for their growth and thus development, an area Asian NICs managed successfully.

The Author is a Senior Presidential Advisor on
Economic Planning

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