Opinionista Trudi Makhaya 17 March 2014

Government vs business: a need for vigilant mutual scrutiny

In my column last week, I painted the dire state of government-business relations and reflected on the ways that the two spheres could engage in a meaningful way. A reader might have walked away from the article thinking that I consider friction between government and the private sector as largely or even inherently undesirable.

There are many who think that the way to overcome some of our deepest economic challenges begins with perennially and unconditionally harmonious government-business relations. At two very different workshops I attended last week, the relationship between the private sector and the government came to the fore. At Wits University, the workshop on political economy had, as its framing question, whether the last two decades represent neoliberal success or developmental failure. On the other side of town, at GIBS, the idea was to bring together a group of leaders and analysts, mostly from business, to brainstorm options for improving South Africa’s export competitiveness.

There is an influential strand in the left that sees business-government relations as a case of government policy, at least in the economic sphere, as captured by big business. There is the now famous story of how former President Mandela returned from his first trip to Davos a changed man, one who no longer believed in the economic vision of the Freedom Charter, but a man who had fallen to the dictates of global business. Of course, the significance of this pre-1996 phase in ANC (and the alliance’s) economic policy-making is contested. A discussant at the Wits workshop, Dinga Sikwebu, argued that the ‘1996 class project’ in fact goes back to the 1980s, when some segments of Cosatu began exploring the idea of export-orientation as an industrial strategy. Either way, the alliance and business are seen as singing from the same ideological hymn sheet.

At the business school, the sentiment was that government and business were not on the same page. When asked to identify constraints to economic success, the usual suspects came up including red tape generated by government regulation, policy uncertainty and lack of dialogue between business and government. In this view government is distant, hostile or indifferent to business. In my column last week, I tried to challenge this mystification of government by business.

So, the left think business owns government, and the right thinks government hates business (sound policies aside). It’s a question of perspective and expectations. What is the appropriate relationship between government and business? Given the sheer scale of the developmental challenge we face, it is to be expected that a certain level of co-ordination is required between business and government.

But in a developing democracy, there is also necessary and healthy tension between government and business that ensures that both remain effective and relevant to society’s needs. The exercise of power requires constraints. Where private economic interests dominate, the rule of oligarchs subjects the rest of society to subsidising business, high prices and inefficiency. Unchecked government power leads to the erosion of citizenship and ultimately dictatorship.

It is important to have competition in politics and in business to achieve good outcomes in governance and in the market. Such competition is lacking in our country that suffers from concentration in both spheres. Under the circumstances, there are important checks and balances that various sectors of society can place on one another to constrain the unfettered power that would otherwise exist. The institutions of democracy are only as effective as the constituencies that take advantage of the opportunities for advocacy, debate and oversight.

There are many instances in which harmony between the government and business can lead to outcomes that are detrimental to society as a whole. The discussion on export competitiveness is a case in point. Across time and geography, business is often fond of arguing that the key to international competitiveness is to stifle competition and waive regulation in the domestic economy. Governments tend to play along, because this plays into patriotic impulses of building so-called national champions. This is hardly the recipe for export success.

A recent World Bank report presents some fairly common sense issues we should, at least, consider to improve the economy’s external competitiveness. The report argues for sharper local competition, addressing infrastructure bottlenecks and the pricing of trade logistics, and finally encouraging deeper regional integration as solutions. These actions would require business and government to agree on some basic principles, but also to exercise some vigilant scrutiny over each other’s practices and policies.

Government has to keep in check the cartels, monopolies and oligopolies that raise input costs and make South Africa a difficult place to start and to grow a business. Business is an interest group, and its contributions to policy discussions sometimes will be partisan and unhelpful, and have to be treated as such. This is not the sign of hostility but of a government acting in the public interest. The reputation of rigour in evaluating the private sector’s contributions also protects the government from allegations of capture.

In turn, the private sector needs to highlight the ways in which policy and regulation frustrates fair business practices. Where incumbent businesses conspire with governments to maintain an uncompetitive status quo, it is the role of emerging and the innovative segments of the private sector to sound the alarm. These are the necessary tensions that save us from group-think and dangerous consensus. DM

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