Economic development and the private sector...

Continued from yesterday

Ravi Randeniya Fmr. Senior Policy Analyst, Ministry of Trade and Economic Development Govt of British Columbia

Risk of overexposure to Government

Governments have long sought to ensure that market outcomes benefit the citizenry. However, the effects of state failure can be worse than those of market failure. Indifferent governments can impede the functioning of markets and the expansion of the private sector either through inaction and poorly conceived actions. For example, a typical response to poorly performing markets is for governments to try to engage in services that provide goods and services by themselves.

This interferes with the natural demand and supply fundamentals of markets, and undermines the productivity driven private sector. The key emerging lesson from this experience is the value of an effective relationship between the state and private sector to identify appropriate solutions to address market failure. On the other hand, the governments must recognize that these activities by them prevent much needed tax revenue, a drain on their resources and a diversion from other more important infrastructure development.

An ineffective relationship between the state and private organisations provides the perfect recipe for a failed state that breeds corruption and embezzlement. On the other hand, the competence of a state underpins political and economic stability. In a democracy, the state is chiefly responsible for the provision and regulation of infrastructure, health and education - providing the institutions required for private companies to prosper.

It creates the ideal circumstance for flow of investment and commerce activities through sound trade policies, fair competition policy, and regulation of utilities, commercial justice systems, fair taxation, labour codes and sound environmental management.

Need for partnership building

Markets themselves can be seen as a type of institution with their own ‘rules of the game’ that are set by historical, political and cultural factors. In theory, it is the role of the state to arbitrate between competing claims on resources and to maintain stability. In short, the state has to be the neutral and rational arbiter to establish its legitimacy as the enforcer of the ‘social contract’ between the government and the governed.

The goal is a ‘meeting of minds’ over the political economy of the state and the political economy of business interests through dialogue on making regulatory reform, investment in public goods, how to develop public-private partnerships and other measures to stimulate growth. Private sector development and the economic growth of a nation that realize, must also be made politically and socially feasible.

The development of a common interest between the state and the business sector is fundamental to building partnerships between the government and public sector. State and business alliances have been used successively in all parts of the world to maintain economic stability while sharing and managing state assets judiciously.

The greatest developmental contribution that companies can make is through the investment, jobs, revenues, goods and services they produce. They can also develop better business environments to enable entrepreneurship to flourish giving the brightest and smartest to prosper.

The governments’ goal should focus on making the best fit between the opportunities for achieving positive change and maximizing the key competencies of the private sector. They must be targeted at development partners - in government, the private sector, civil society and developing agencies like NGOs - that are interested in private sector led growth.

New business models that can support growth and development through purposeful investment should be considered for significant job creation and providing new government revenues through taxes. In addition, international and local businesses participation can help to improve productivity and quality to join the international supply chains. One of the biggest effects will be increased access to goods and services through such partnerships.

Governments must incorporate strategies for continuous innovation and experimentation to take advantage of gains from the early stages. When exploring new approaches and financial instruments which are experimental in nature, governments must examine similar implementation experience in other economies. These would include the use of unconventional funds, advance market commitments, transparency initiatives and other facilities for developing partnerships with private firms and foundations.

Finally, it is essential that governments take leadership by encouraging ethical trading practices, think of less intervention other than to tweak occasionally and seek a better understanding of how responsibility and competitiveness are mutually supportive and beneficial. The purpose is to ensure healthy competitive markets flourish which are critical for economic growth.