WE NEED TO GO BACK TO BASICS ON BUSINESS LED GROWTH

History has shown that countries are only as viable as their business communities.

If ever there was proof  of this was the collapse of the communist block in the 1990s. The communist led by the USSR believed in controlled economies where government-controlled the forces of supply and demand. A bad idea.

The viability of the business community depends on many things but mainly the sanctity of property rights, the observance of contracts and the quality of the human resource.

The interaction of these then determine the nature and vibrancy of the markets in which the businesses operate.

This last part is important. Think of a market as a place where hundreds, thousands even million s of business experiments happen daily. These experiments are generated by individuals playing in the market. The successful experiments succeed or otherwise are discarded...

No one entity can simulate these experiments and that is why controlled economies have failed spectacularly through history. It is why North Korea, the USSR and chairman Mao’s China before it, are/were nuclear powers but had “bread lines”.

For a government interested in sustainable development the question of to have or not to have a functional market does not arise.

Markets create wealth and not governments.

The trick then becomes how can we then have this market serve our national development aspirations?

The market is brutal. Left to its own devices it gives more to those who have and to those who don’t have, even the little they have can be taken away.

If the role of the market is to create wealth, the role of governments is to distribute that wealth in a way that assures an improving standard of living for the population with out killing the goose that lays the golden eggs, the market.

So, in countries which enjoy growth but have huge income and wealth disparities, it is an indictment on the government and not the market, which has created the economic growth.

The US for example the wealthiest country in the world has among the highest level of inequality, partly for racial reasons but also because the market having been left to run rampant has become so powerful that it fights attempts by anybody to bring it under control.

The National Rifle Association (NRA) in the US fights off any attempts to introduce more stringent regulation around guns held in public hands despite the hundreds that die every year from mass gun shootings in that country. As at the end of June, 416 had been killed in 340 shooting incidents, which would mean more than two people are killed daily in America from needless gun violence.

"But beyond distribution of the goodies, governments’ role is increasing the enabling environment for the markets to thrive....

But to do this there has to be some understanding about how business and by extension the market works.

At the basic level businesses are set up to make money. But all good businessmen know that the extent to which they make money depends on how many people they can serve in a cost-effective way.

Business despite what they say don’t like competition. A monopoly situation is ideal for businesses because they can price their products higher than they could in a competitive environment and make massive profits.

Part of creating an enabling environment is ensuring there is room for fair competition. So governments should be involved in creating new markets, regulating existing ones within a coherent national strategy.

This of course requires a lot of mental application and to avoid it governments’ knee jerk reaction is to create companies. More often than not to their detriment.

Governments are bad at business not because the managers are incompetent, but because for governments other considerations – dishing out favours, other than long term viability are more important to them. Government businesses often survive longer than they should because they have access to free money – taxes to keep them afloat for longer than necessary. It doesn’t take much intelligence to keep shoveling good money after bad when you have an “inexhaustible” stream of revenue.

If a government understands how business is done it need not get involved, it just has to tweak the incentives for business to one, survive and thrive and secondly, to be in line with the national aspirations.

Japan for instance has no state-owned banks, but the banks have been key pillars of their export led development since the second world war. The businessmen initially had to be dragged kicking and screaming to support Japan’s infant industries but have come out the better for it and are more amenable to government’s direction.

In Uganda we went down the way of private sector growth because it was a condition to unlock the aid taps in the 1980s. More recently things are happening that suggest we were not really sold on the project and emboldened by increasing tax collections, government wants to go back into business...

That is where the trouble lies. Some people in government think the main reason our companies had to be got rid of was lack of money. They will soon find out that’s not true. 

It’s a prophecy I would like to be wrong about, if only because it is my money they are squandering in these blackhole new public companies.

"Government has the intellectual capacity to wrap their heads around how markets work and develop an incentive regime for businesses to support national strategy. It is not intelligence that is lacking in our government...