OPEN ECONOMY: The difference between average and great policy making

05 Oct, 2014 - 09:10 0 Views

The Sunday Mail

There is a saying that goes, “If the facts don’t fit the theory, change the theory.” Unfortunately, too often in Zimbabwe we have become accustomed to discounting the facts, adamant that the theory cannot be double-checked.

The facts are in economic condition; income levels, output levels, domestic demand, costs of doing business, standard of living.

Facts are measurable, quantitative and qualitative data from which we then make decisions.

As a sign of our unwavering commitment to discounting the importance of facts, we hardly take labour in enhancing the accuracy of our data and information gathering.

For instance, what is the median income in Zimbabwe, and has it been rising or falling? What is our definition for standard of living in Zimbabwe; do we track whether the masses are experiencing an increase or decrease in their standard of life?

These economic facts often describe the industry and the citizenry, of which perhaps therein lies the problem.

We are comfortable discounting the facts because they reflect an assessment of the private sector. This is comfortable territory for us.

Re-examining the theory, however, makes us a bit more uncomfortable. We become unsettled.

The theory we do not re-examine is the size of Government. Quite often, we tolerate the big-versus-small-government debate only when we talk about other countries.

When it comes to us, there is no debate. Big-versus-small-government debate is non-existent.

Much so that for many of our policy-makers, re-examining size and contribution of State enterprises is not even an option up for consideration in their policy-making.

Well, this has been Finance Minister Patrick Chinamasa’s Achilles’ heel.

The facts reveal that industry and citizens have economically shrunk to the point of fiscal unsustainability.

With industry unproductive and unprofitable, there are cuts in employment.

Unemployed citizens depress average income levels. When income levels decrease, so does domestic demand for industrial output, ultimately creating a vicious cycle that has made our big Government’s tax base unsustainable.

Insisting on more aggressive tax regimes is counter-intuitive.

Industry and citizens are close to exhausting their role to play in fiscal policy.

This is not to say that Minister Chinamasa has been dishonest with these facts.

Instead, he risks following the culture ingrained in our policy practices; practices of discounting and going around the facts.

Many of our ministers get by with temporarily curing the symptoms or covering the wounds; hence at best they become average policymakers. They shy away from the facts.

However, Minister Chinamasa cannot afford to be the average policymaker at this time.

He has to embrace the facts, and double-check the theory. He has to be the one who opens the debate on the size and contribution of State enterprises.

Is this theory of big government correct? I would argue that this theory is proving to be flawed and unsustainable.

You see, in an economic sense, and constitutionally, too, governments exist to facilitate economic activity for industry and commercially-active citizens.

That is to foster the development and expansion of private enterprise.

So, in considering size and contribution of government, I am referring to the extent of scope that government itself becomes a participant in economic activity, thus shrinking the private sector to a point of fiscal imbalance.

Here are three arguments against big government theory in Zimbabwe.

First, State enterprises and parastatals are not making profits; many of which are actually in debt, forcing this aggressive fiscal policy.

These losses are then being paid for by private enterprise which is impeding private sector expansion. Government may need to discontinue certain loss-making operations.

Second, since many State enterprises have a monopoly in key sectors such as energy, agriculture and infrastructure, the entire sector as a whole starts lagging because of the inefficient monopoly.

This leaves little room for private enterprise in what otherwise could be real growth sectors that could increase private wealth which is the main source of fiscal revenue.

Likewise, decreased private wealth means less local private capital formation which should be our first source of investment ahead of foreign investment.

Third, on the basis that investment has been hard to attract into our borders, most of the growing sectors attracting investment in global markets are State-run in Zimbabwe.

Is it not plausible then that many potential investors are not excited by the idea of putting money into our sectors because of State enterprise predominance?

Quite possibly, a competitive market lively with increased private operators would be more enticing to investors.

A bonus point to consider supposing that we are open to privatisation; perhaps privatising some State enterprises may be a good means of wealth distribution.

The equity indigenisation model may apply. Citizens may become shareholders to a substantial percentage of market-dominant enterprises.

In a fiscal perspective, this could boost our tax base in the long term as citizens take ownership in better run, more profitable privatised entities.

If Minister Chinamasa pushes forward this perspective, not only can he get the economy going again but, more importantly, he would inspire a country to be open to reforms and flexible in its structures; a modern-day requirement to achieve sustained economic growth.

He would be challenging our cultural stiffness to dealing with the facts, and testing the theory.

In my evaluation, that is the difference between an average policymaker and a great policymaker.

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