Some thoughts on Economic Development - What and How? Part 2
Kodwo Mbir Bullard
Kodwo Mbir Bullard concludes his article begun last week on some aspects of economic development and peculiar problems facing Third World countries in general with particular reference to GhanaAt this stage I would like to bring the discussion nearer home. Ghana has had a very rich experience over the last thirty or so years which we must learn from if we are not to continue to be wasteful and needlessly experimental. The end of the Second World War ushered in an era of decolonisation.
The colonial territories were backward according to all the then known social and economic indicators. The concern especially in the metropolitan countries was how to raise the standards of living in the erstwhile colonies to heights comparable with those in the industrialised countries. Of course there was the other objective to expand the overseas markets for the products of the metropolitan industries, although this objective was not said too loudly by the mainstream development theorists.
It was forcefully argued by development theorists, strangely from the West (this point will be elaborated below), that in the absence of a vigorous entrepreneurial class in the former colonies capable of undertaking large-scale investment, the State should play that role. This argument was bought and cycled freely by the colonies. That was the development dogma.
But historically, there was every reason why that strategy should have been challenged and rejected. Maybe in hindsight, that is very clear now. The major reason being that most of the countries in the western world that had become industrialised, and were enjoying relatively high standards of living, had achieved that status primarily through private initiatives in the production sector.
The argument that the former colonies lacked entrepreneurs did not hold any water either. This is because Britain, France, The United States and Germany did not wake up suddenly one day in the eighteenth century to find their respective countries flooded with industrial entrepreneurs and magnates like the Henry Fords, Rockefellers and Rothschilds. These entrepreneurs emerged over a period of time through experimentation, failures and successes, most of whom started their businesses on a small scale in their back-yards and small workshops.
So without any regard for history, the metropolitan countries established agricultural and industrial develop- ment corporations all over Africa. Through these corporations, a number of industries and agricultural enterprises were also set up.
President Nkrumah dramatised this development strategy with the Seven-Year Development Plan in which the State of Ghana was to play the leading role in the setting up and running of productive enterprises in all the economic sectors as well as in the social and consumption sectors. The Seven- Year Plan, sub-titled the programme for Work and Happiness was launched with fanfare in 1961.
It is reported (though not confirmed) that when Sir Arthur Lewis presented the summary of his development plan for the industrialisation of the Gold Coast to Nkrumah years earlier, Arthur Lewis had recommended the setting up of 60 factories. Nkrumah rejected the number as too few and added another zero to the 60 and came up with 600 factories! With a stroke of the pen, the State was going to become the major entrepreneur. At the time of Nkrumah's overthrow in February 1966, the State had set up 53 public enterprises and corporations with over 100 state and other institutional farms throughout the country.
The performance of most of these enterprises has been abysmal. The catalogue of failures and losses has also been monumental. Ghana's experience with public sector participation in productive investment has been characterised by a lack of any coherent let alone economically sensible policy. I will give a few examples.
A state corporation which has been making heavy losses consistently over the years and subsisting on government subventions even in the payment of monthly wages, rewards its worker with end of year bonuses and organises a lavish party to celebrate the close of the year. Another state corporation that has been struggling over the years with antiquated plant and equipment obtains a huge loan from the World Bank with the help of the government. The first thing this corporation does is to call for the design of a multi-million dollar office complex, the design and construction of staff bungalows and the purchase of corporation executive cars.
By the time it comes to renovating the facilities that the corporation uses in the delivery of its services, i.e. the railway lines and coaches, things one would describe as the raison d'etre of the corporation, not much of the loan is left for anything. A last example will suffice. One of the decisions the Board of Directors of a state corporation takes in its effort to boost production in the sector (cocoa) is to raise the allowances and other benefits of the board members!
Then of course, there are certain decisions and situations that are forced on the public sector in the conduct of its business that are none of the government's doing but are nonethe- less very costly. For example the government would not like to lay off workers in state factories even after long periods of plant inactivity. From the welfare standpoint, this is great. But from the standpoint of efficiency and the long term viability of the national economy, this is a disaster. By merely pumping money into the economy via workers' salaries without a corresponding expansion in the output of goods and services to absorb the extra money in circulation, the currency is systematically devalued through inflation.
Direct Government participation in production and distribution is by nature inefficient and wasteful. Incentives to motivate worker to higher levels of productivity are low or non-existent. To complicate matters, management in the public sector generally does not get unduly worried when costs rise over and above revenues.
I submit that the above cases are economically suicidal blunders that the private sector will not countenance let alone allow to become the norm. For these and other equally critical reasons, the public sector has been a BANE on the national economy. I must however hasten to add that the rot in Ghana's public sector is not unique to Ghana. It happens to be a very common characteristic in late-industrialising Third World countries. I will quote here a recent article in the Los Angeles Times of October 5, 1984 about a similar situation in Argentina.
"Argentina is a nation divided. There is a frustrated minority who have telephones and an angry majority who can't get them. The telephones seem about equally divided between those that just barely function and those that don't work at all. Those that do, tend to whistle and pop. They moan, they wail and they fall insolently mute without warning. The busy signal comes on inexplicably, often in the middle of a conversation that may include six or eight strangers brought together by rotting cables. Employees of the state telephone company, well rested after not working on company time, become crafty moonlighters who string black market phone lines from rooftop to rooftop.
"ENTEL is the government monopoly that is responsible for 87 per cent of Argentine's 2.5 million telephones. Garcia, the head of ENTEL, is duelling with a slothful bureaucracy and twin traditions of corruption and mismanagement in an effort to modernise a company that Argentines love to hate. The mess at Entel is typical of Argentine's state- owned industries that range from railroads and airlines to munition plants and the oil monopoly. Sixty-five per cent of the gross national product is generated by the government and its agencies, and salaries account for 60 per cent of the national budget."
The main point of this paper is that direct government participation in production and distribution is by nature inefficient and wasteful. Incentives to motivate workers to higher levels of productivity are low or non-existent. To complicate matters, management in the public sector generally does not get unduly worried when costs rise over and above revenues.
They do not worry because whether they make losses or profits, jobs and salaries are guaranteed. Political pressures usually add to the woes of the public productive sector through nepotism and cronyism. The conclusion is that it is not the business of government to undertake direct productive investment or any invest- ment that is supposed to operate for profit. In other words, any government that is serious about achieving rapid economic growth and a steady rise in the level of social and economic development in the long run, should better leave the productive sector alone.
This does not mean that the government should not award any contracts. On the contrary, government contracts to the private sector can act as the spur or fillip to economic activity. Witness for example the defence contracts awarded by the United States Government to corporations like Hughes Aircraft, Lockheed, Northrop, and McDouglass in California. The aerospace industry, under which these contracts fall, constitutes the one most important single industry in terms of jobs, gross output, value added etc in the entire California economy.
Traditionally there are certain functions a government can do extremely well. Examples are defence, law and order, education, roads, bridges, postal services, etc. Government finances all these services, facilities and activities through its fiscal or tax policies.
The Ghana Government is already deep into production in the national economy. The way out for the Government is NOT to suddenly jump out, throwing everything into an unprepared private sector. Government has to withdraw but the process of withdrawal has to be done properly. Government should draw up a programme for each of the enterprises it now controls and runs. In these programmes Government should set out very clearly, two- and five-year schedules during which gradual transfer will be effected from the public to the private sector.
Private ownership does not necessarily mean single individuals buying up the enterprises, although such ownership type should not be ruled out. It could mean the workers of particular enterprises buying up the equity shares of that enterprise and electing from among themselves a Board that would run the enterprise on their behalf and would therefore be accountable to the workers. The board would appoint its own management with the requisite expertise to see to the day to day efficient operation of the enterprise. There are other ownership types including public-private partnerships that should also be examined. HEALTHY ENVIRONMENT The role of the Government in production would be indirect. Apart from the contracts already mentioned above, government should formulate policies that would facilitate the acquisition of loans, hiring of labour, protection of private property, sale of produce unhampered by members of the military, freedom from nationalisation etc, etc. In other words Government should provide a safe and a healthy environment for the conduct of industry and business.
To generate the needed funds to finance all these functions, Government should concentrate on establishing an efficient tax system. This system would ensure that anybody or business that should pay tax is not left out of the tax net. The tax schedules should be made reasonable as well as progressive. Each of the areas I have outlined above needs careful study and elaboration and ideas on how these should be done are welcome.
I know that all I am recommending runs counter to policies being presently pursued in Accra. It requires courage, however, to sit back, take stock of what has been going on and decide to try other alternatives especially when the performance of the recent past leaves much to be desired. You do not correct what has apparently gone wrong by doing more of the same thing.
This I think is foolhardiness. In deciding what role the government should play, we can take a cue from what has been happening in Japan, where the Government protects the private sector in its efforts to meet the needs of the domestic economy as well as compete efficiently in the international market. Rather than systematically undermining the private sector through harassment on the silly premise that all wealthy men and women are thieves, the Ghana Government should help the sector to expand its basis and processes of capital accumulation.
It may appear that I am advocating a system that has been labelled 'unbridled capitalism' elsewhere. Labels may or may not be helpful depending on the context. In our present context, the specific ideological labelling is not very crucial. The important thing, I believe, is for the Government to be aware of its capabilities, strengths as well as weaknesses and to be able to define precisely and boldly what it can do well and what it can't do creditably and act accordingly with specific policies and programmes.
The issue is joint. The debate is open.
