The Case For An Assertive State

To play their role effectively, governments should wield the necessary authority, be respected and seen to be running the affairs of State in the public interest

During the colonial occupation of Mauritius, large planters saw the extra profits they could make by producing more sugar for the external market. Prices were high. Demand was most of the time well sustained than not. The planters made repeated pleas to the government to import labour so they could grow sugar cane on their large tracts of land that were lying idle. It was in this context that large numbers of workers were brought in from India, among other countries, to man the expansion of sugar cane plantations in Mauritius. As sugar production went apace, the economic scope of Mauritius was increased and its market connectivity improved in the process.

But the story does not stop here. During the French colonial past, the government had granted large concessions of land to French settlers. This was carried forward during British colonisation. Had this policy of awarding vast plots of land to the settlers not been taken during the French period, this massive immigration which changed the fundamental outlook of the country, would not have happened. The impact was dramatic. The very composition of the population – consisting before that mainly of slaves and descendants of slaves – underwent massive change. The range of occupations in the country increased. Along with the Indian and other workers came new religions and cultures. The administrative machinery had to cope with much larger volumes than erstwhile. Mauritius thus gained in substance.

Long term impact of government policies

The origins of this sea change in the country’s construct and in its future orientation stemmed from that one decision of the French colonial government to make large concessions of lands to the settlers. This decision continues to have an impact inasmuch as it has given rise to concentration of incomes and wealth to this day while at the same time occasioning greater diversity in society. Under political and social pressure, more humane social policies were introduced and education became the liberator of the entire population from the quasi-feudal system which had prevailed over a long stretch of time in the country’s history right from its beginnings. Similarly, the colonial government’s decision to grant free land to the rail barons for laying down the country’s railway network made it easier for people and goods to be moved across the country. Increased mobility made it easier to exploit the land resources more fully.

These long lasting effects of government policies help to understand the role of the State in promoting the social and economic upkeep of nations. The French and British colonial governments may not have foreseen the manifold consequences of their respective land and road/railway policies. The point however is that government policies, unlike short-termist and gradualist private sector policies and decisions based on profit-taking, have long term consequences in terms of social and economic change. Government decisions taken with respect to provision of education, health and telecommunications have impacted deeply into what Mauritius is today and what it will be tomorrow, in the League of Nations.

Should there be a minimum and timorous government?

The role of the State is frequently played down in the market driven economy. At the time private profit is thriving and there is scope to do even better in time to come, strident calls are made by ultra-liberalists to curtail the “interference” of government. The claim is then made that “small government is the best government”. In other words, the government should do the minimum leaving it to the private sector to drive the bigger parameters. However, when times are not so good, as happened in 2007 with the onset of the financial crisis in the West, governments are given compulsive roles to step in, preferably with a lot of bailout money in their hands at taxpayers’ expense. Facts show that governments have intervened and will intervene in future to fundamentally shape up the course of events in societies even if the question remains posed: who would expect governments to provide well thought-out “forward guidance” to other stakeholders, if they cannot guide themselves appropriately? To play their role effectively, governments should wield the necessary authority, be respected and seen to be running the affairs of State in the public interest.

Institutions like the World Bank and the IMF often shower praise on governments which relinquish their essential roles to the private sector… until the disaster hits again. This is when they themselves come up to the governments to impress the need for structural adjustments piloted by the very governments which were being asked to lay their hands off when the going was good for the private sector. This is a phenomenon which repeats itself not only for a country like Mauritius; it is the sort of remedy being endorsed currently for the likes of Greece and Spain. Historical evidence shows however that effective governments have not been called upon to tinker at the edge only when the going ceases to be good. In those countries where they have fully assumed their responsibilities, it is they who have been the prime architects behind all growth stories all over the world. That is why it is distressing to witness that, following some misguided advice, certain governments often fall into the trap of neglecting the very ladders through which they have ascended to power, when they are not squarely prevented by lobbies from passing the rightful laws and regulations for the good conduct of those who take advantage of governments on leave of absence from their duties.

Governments have pioneered the transforming act for business

Here are a few examples of some recent breakthroughs made by governments with taxpayers’ money which have ushered in dramatic improvements in the way business is done. We’ve already referred to the land concessions which enabled the plantation economy and the railways to flourish, not solely in Mauritius. These decisions were literally at ground level. In other places, the State has however gone much further into the most sophisticated levels of economic activity as well. Consider the current proliferation of ‘smart’ products in the field of smart technologies selling like hot cakes in today’s markets. Its foundation lies in the pioneering work done by American armed forces to set up the internet, then the GPS and finally voice-activated “virtual assistants”. Academics in publicly funded universities and labs of America set off the touchscreen system and the HTML language which goes into smart tablets and so forth. The American National Science Foundation supported the research which developed the search algorithm, the very fount of wealth of Google’s search machine.

The State has gone into almost every other field in which business is thriving: huge amounts of national budgets are dedicated to the creation of today’s most revolutionary new drugs or to advance technologies which go into things like prosthetics and aircrafts. In so doing, the State is actually creating and shaping the markets of the future, not simply mitigating for excessive market malpractices. All the developments done by the military and academic research public sector institutions have led private institutions, such as Apple, to reap huge benefits by literally flooding the markets with apps of various sorts. There is little by way of acknowledgement of the pioneering work done in the public sector brought to bear on the eventual huge profitability of private enterprise. This is not to say that private enterprise should adopt a hands-off policy of waiting for the State to create new avenues; it is expected to do its own lot but ends up relying on the public sector to open up new innovative pathways.

This is not a situation happening only today. Since days immemorial governments have laid down the basic orientation into which civilisations have gone. Roman ducts waterways, roads and walls spanned across nearly the whole of Europe. Those pyramids of Egypt were surely not the handiworks of private enterprise and they stand as enduring testimonies of what States can achieve in terms of activities transcending the boundaries of time. They are still providing incomes to vast swathes of tourist activities in Egypt although they may not have been raised for this purpose at a time when the country bathed in more glorious sunlight than it is the case today. It is true that certain economic activities can be better handled by the private sector than by the State but it remains true that, the more successful countries are, the more the State occupies a central position of giving sound direction to whatever activities are conducted in those places in well-tuned frameworks of good governance. In such cases, the State is not intrusive but makes sure that a balance is struck to avoid excesses by letting things drift out of control.

The State should set the highest standards
of good governance

There is no rule which states that State enterprises are bound to fail. At one time, governments set up State enterprises where there was a need to do so, bridging gaps by engaging in activities the private sector was loath to take up, not being profitable enough to undertake. This role of the State is not limited to the supply of what are called ‘public goods’ such as providing defence and State security, carrying out fundamental research at high cost and keeping the economy from failing. It is a pace setter in many respects.

Once the State decides to engage in any line of business, however, there is no reason why it should not do so in an enduring manner. Some examples of mismanagement of State enterprises and consequent failure are often brought up to uphold an argument that this kind of occupation should better be left to the private sector. In fact, the most obvious case of wide-ranging business failure stems not from State enterprises but from private sector activities which led to the financial crisis and the bust of the housing bubble which have put the world into a downturn for five years now. When governments take up a line of business, they should set an example of excellence and earn the respect of the community for rigour and discipline rather than for self-serving. They should serve the ‘public interest’ and not be unprofitable for mere reason of being dedicated to the public.

Had the essential coordinating and business orientation work not been undertaken by the now-mythical Ministry of International Trade and Industry (MITI) of Japan as from 1949, strategic business inroads would not have been made so globally by a Japan reeling in the wake of World War II, under high inflation and low productivity against a barrage of exchange and capital controls worldwide. True, governments sometimes destroy the goodwill of public enterprises when going for short-run political gains. There are also governments that cannot truly be called governments so busy are the leaders to grab and preserve power by bringing all manner of distortions in the economy and society. But this is not the rule. The rule rather is that government enterprise is run with a much longer perspective in view than private enterprise. The government enterprise is a milieu in which forward looking and well-networked innovations are made, albeit at exorbitant costs on occasion. But these innovations are shared in turn with the private sector, oftentimes for the latter to run the extra mile to its advantage.

Governments have shown that they can also deliver

It has often been said that governments should step in only to deal with cases of market failure, such as what happened with the banking crisis of 2008 after Lehman Brothers went down. Ironically, governments which are told not to have a direct role in the running of businesses – for which they are supposedly not suited — are expected on such occasions to set things right when the going goes bad for private businesses. It is true that by setting its sights at a lofty and more comprehensive level, a government can put the pieces together more efficiently than what individual units struggling for their own survival can do. But that does not disqualify governments from also running the show wherever necessary provided they don’t get into situations of conflict such as being judge and party at the same time.

From making meaningful laws to having them implemented, governments have a continuous role to maintain the pieces together and keep the clock ticking all the way. This, they can do if they are manned by public sector archetypes who have a clear vision of the future and a sharp understanding of the total environment in which society and the economy play out. As the numbers of efficient drivers of the sort have gotten lesser and lesser with time, many governments in less developed countries have ceased putting the premium it needs on the quality and excellence of those who should be looking after the sustained upkeep of a respected public sector both at home and abroad.

Had it not been for Mauritius Telecom, a past government department, the current protagonists in Mauritius’ communications sector would not have been making supernormal profits year after year. Had it not been for a well laid out CEB in the past, the IPPs would not have been basking in such warm sunlight all of their way. We have narrowly missed the privatisation of the CWA but it will be only bad faith not to concede that this government department has brought water at our doorsteps till now even if it has suffered from some hiccups. Had it been for the Public Works Department of yesteryears, our public roads would not have necessitated so many frequent resurfacings at high cost as what we see today. All this goes on to show that a well-administered public sector – the State – has delivered what was expected of it. It could still do so.

* Published in print edition on 14 September 2013