BOOK REVIEW: BEFORE GOVT BLAMES THE MARKET, UNTIE ITS SHOE LACES

Book: The Heart of a Cheetah: How We Have Been Lied to about African Poverty, and What That Means for Human Flourishing

Author: Magatte Wade

Imagine entering Usain Bolt in a 100-metre race, tying his shoelaces together, putting a sack of cement on his back and then, when he finishes last, announcing triumphantly that sprinting does not work.

That, in many ways, is what African governments have done to the private sector.

Which is why Magatte Wade’s TheHeart of a Cheetah resonated so strongly with me.

Wade, a Senegalese entrepreneur, is a woman after my own heart. Her central argument is simple: Africa’s best chance of escaping poverty lies not in more aid, more government enterprises or another round of grand development plans, but in unleashing entrepreneurs...

I agree.

Africa is not short of ambitious people. Neither are we short of resources. We have minerals, agricultural land, energy, young populations and increasingly large markets.

What we have consistently lacked is an environment that allows Africans to turn all these advantages into wealth.

And this is where Wade makes one of her most important observations.

Across the continent, governments are creeping back into business, often on the argument that the free market has failed.

But what free market?

Take Uganda.

In the World Bank’s final Doing Business rankings in 2020, Uganda ranked 116th out of 190 economies overall. We were 169th for starting a business and 168th for getting electricity.

Then we turn around and say the private sector has failed.

Failed under what conditions?

"Entrepreneurs operate with expensive electricity, inadequate infrastructure, costly credit, bureaucracy, licences, taxes, unpredictable regulation and delays moving goods.

Then government looks at the resulting weak private sector and declares: “You see? Markets do not work. Government must intervene.”

You cannot tie Usain Bolt’s shoelaces together and then conclude that sprinting does not work.

That argument should make us nervous because we have seen this movie before.

After independence, much of Africa embraced socialism and state capitalism. Governments owned banks, hotels, factories, farms, transport companies and trading enterprises.

The reasoning sounded noble.

The private sector was weak. Local capital was scarce. Government therefore had to step in and lead development.

What followed in many countries was predictable.

State enterprises became centres of inefficiency and patronage. Losses were covered by taxpayers. Jobs became political rewards. Procurement enriched connected insiders.

"Socialism did not abolish elites.

It simply created a different route into the elite...

Instead of creating wealth by satisfying customers, the quickest route to wealth became proximity to government.

And that is what worries about the renewed enthusiasm for government getting directly back into business.

Already, some interventions dressed up as industrial policy look suspiciously like mechanisms for appropriating public money for the benefit of a connected few...

Government announces a project.

Taxpayer money is allocated.

There is a commissioning ceremony, flags, speeches, television cameras and photographs of important people cutting ribbons.

Then come the questions that really matter.

Where are the sales?

Where are the profits?

Where are the exports?

Where is the return on taxpayers’ capital?

Silence.

A private businessman does not have that luxury. If nobody buys his product, he eventually closes shop.

Government can return to Parliament and ask for another appropriation.

This is why Wade believe the free market remains Africa’s best chance of prosperity.

Not because markets are perfect. They are not.

Not because businessmen are saints. They are not either.

But markets impose a discipline that government enterprises rarely face. You must produce something people want, at a price they are prepared to pay. If you do that well, you grow. If you do it badly, someone else takes your customers.

That constant pressure to improve is where productivity, innovation and ultimately wealth come from.

Government has a critical role in this process, but it is a different role.

"Government should protect property rights, enforce contracts, maintain security, educate people, build infrastructure, ensure reliable electricity and maintain macroeconomic stability.

In other words, government should make it ridiculously easy to do business...

Then a virtuous cycle begins.

Businesses grow and employ people. Workers earn incomes and consume more. Companies make profits and reinvest. Government collects more tax from a larger economy without necessarily increasing tax rates.

Those revenues finance better infrastructure and public services, which lower the cost of doing business further.

More investment follows.

The economy expands again.

That is the cycle we should be chasing.

Instead, too often we do the reverse. We tax a small formal private sector more heavily, regulate it more aggressively and then use some of those taxes to finance government businesses that compete against it.

Then we complain that enterprise is weak.

And dare I say it, we should remember where this road can end.

Many African economies travelled it in the 1970s and 1980s.

"Governments accumulated loss-making parastatals. Budget deficits widened. Debt mounted. Foreign exchange became scarce. Economies stagnated.

Eventually we went back, cap in hand, to the World Bank and IMF and were prescribed the dreaded Structural Adjustment Programmes...

Privatise.

Liberalise.

Cut subsidies.

Reduce government spending.

Allow markets to work.

SAPs remain a dirty word in much of Africa, and understandably so. The adjustment was painful and, in some cases, brutally implemented.

"But we should remember what brought us to the hospital.

If we rebuild the same bloated state enterprises, finance politically connected projects indefinitely and crowd out private capital, we should not be surprised if we eventually require the same unpleasant medicine...

There is an irony here worth appreciating.

We may spend the next decade claiming the free market failed, only to eventually invite the World Bank and IMF back to tell us to embrace the free market again.

Better not to make the journey.

The Heart of a Cheetah is ultimately an optimistic book because Wade refuses to accept that Africa is condemned to poverty.

Africa does not need governments trying to outrun the cheetahs.

It needs governments to build the roads, provide the electricity, enforce the rules, protect property and then get out of the way.

Untie the entrepreneurs’ shoelaces.

Clear the track.

Let the cheetahs run.

Because the road back to Structural Adjustment Programmes may well be paved with loss-making government enterprises.