The government in the Prosperity Creation Ecosystem

Over human history, experiences have repeatedly shown that the market left alone cannot satisfactorily deliver as much prosperity relative to when propped by a government. That is particularly true when the government is both inclusive and effective. The Ibo ethnic group in south-east Nigeria was reputed not to have had a king or ruler before the arrival of the Europeans in Africa. They maintained a college of elders who settled disputes as well as dealt with infringement on the private property rights of citizens. About the same time, several empires ruled by kings sprawled across Africa. There was the bureaucracy of Egypt presided over by the divine Pharaoh, as well as the monarchical Oba who ruled the ancient Benin empire. There were also other monarchies and imperial kingdoms such as the Kanem-Bornu Empire, the Luba Empire, the kingdom of Kongo, and the Almoravid dynasty. The critical difference between the Ibo type of government and the rest was the deeper level of citizens’ involvement in the governance process.

In effect, therefore, there has always been a role for the government in the pursuit of economic progress. That also explains the several variants of the mixed economy. On the one hand, is a more market-driven option and on the other hand, is a more government-driven variant. Such mixed spices in governance have become the reality of our today and are not likely to change soon. What will change is how different countries, continents and the world at large engage the government machinery in the pursuit of prosperity. This engagement process is evident in two broad areas that define the relevance of state in economic progress. The first is the role of setting the preconditions for energising entrepreneurial growth of the economy. The second, which is the traditional justification for the existence of the state, is its intervention in market failures. It follows, therefore, that the attacks on government involvement in the prosperity creation process may partially be the result of the misunderstanding of the complexity of its expected roles. While the market is pretty straightforward to understand as the interaction of demand and supply forces, the part of government is much more complicated. Woven in it are people, institutions, laws and diplomatic relationships whose connections requires careful and efficient management.

The market, as well as market enhancing institutions and actors, must work with the government and its own set of institutions to create the prosperity that is enjoyable by many. The numerous interactions of all these institutions demonstrate the strength of the interdependency for well-being.

There are at least four distinct but interrelated ways in which the government sets the preconditions for entrepreneurial success and national economic growth. The first is by promoting the rule of law as foundational in the continuous enhancement of the virtuous circle of socio-economic inclusiveness. Another way in which it sets the precondition is through the coordination of various institutions of government for maximum beneficial results. It is this role of government that majorly determines its effectiveness. The third is result-oriented diplomacy of development. If diplomatic relations do not substantially result in the prosperity of the target countries, then it is not entirely meaningful. For many years African countries have had diplomatic ties with uneven and exploitative economic benefits that further impoverishes them. The fourth is the judicious management of the fiscal tools to encourage domestic production as well as enhance the monetary authorities pursuit of price stability.

It is a no-brainer that most economic activities falter in the absence of the rule of law even though a small fraction of entrepreneurs fare better in chaos. The entire justice system is set up and maintained by the government primarily to achieve exceptional justice and equity for all. That orderliness enhances the trust which market participants have for each other. Accordingly, contracts hold because there is a government-enacted system for penalising infringements. Overall, these elements facilitate the trust that economic actors have on the future by believing that there would not be unmanageable insecurity that would cost their investments. Data from the 2020 index of economic freedom by the Heritage Foundation shows that sub-Saharan Africa performed the least (on average) in its index of property rights. Compared to Europe that has a score of 72.2, Africa scored 44.1. The global average was 56.6. That is not cheering at all and means that the leaders of the continent have much work to do. Only countries such as Rwanda (76.5), Mauritius (75.8), Botswana (60.9), Kenya (63.2), and Seychelles (68.3) crossed the 60+ reference benchmark.

The effectiveness of government is measured using various criteria depending on where the evaluator is standing. On the social front, the active promotion of the structures and processes for social coexistence is a robust measure. The indicator is consistent with the rule of law criteria. Equity, fairness and justice are eternally cherished principles for every society to live in peace and unity. The manifestation of this is usually in the level of transparency, openness and accountability of government. The performance of sub-Saharan Africa in the government integrity index was abysmally low. While Europe scored 62.9 and the Asia Pacific scored 42.4, sub-Saharan Africa scored 28.9. The global average is 43.8. At the intersection of the social, political and democratic expectations are the inclusiveness of all citizens in governance. That underlies the unpopularity of marginalising principles such as the quota system and the federal character principle.

Across the border, governments should enforce high-quality diplomatic plans that attract the best possible economic and political advantages to its people. It should implement maximum peace with its neighbours and project the image of strength and sturdiness. Many concerns surround the diplomacy and development of the African continent. That raises four crucial questions. What are the priorities that underpin Africa’s economic diplomacy? To what extent are the goals and objectives pursued at the broad international relations front aligned with the macroeconomic goals set by the government? How are the interests of non-state actors – particularly the entrepreneurs – factored into the diplomatic relationships negotiated by the government and political actors? Is there a continental level economic diplomacy or is Africa merely open for grabs by international hawks in treasure hunts? It is not surprising but rather shameful that many African countries have no clearly articulated economic priorities in their bilateral and multilateral relationships. And therefore, the rigour required in negotiating commercial partnerships are often lacking. The consequence is the economically lopsided relationships in favour of the non-African country. Partially, the root of the problem is the absence of robustly crafted alignment between the macroeconomic goals that the government has defined for itself and how the international relationships that it is developing will help in the actualisation.

Although interwoven with the setting of the preconditions for entrepreneurial growth, is the other traditional role of government which is the market failure intervention. Three goals stand out in this regard. The first is the prevention of market failures from negative externalities occurring in the ordinary course of human and entrepreneurial actions. An extension of this is the encouragement of the production of positive externalities and the direct provision of public goods. The second is the management of information asymmetries which frequently confer undue advantages to some segments of the society or economic actors. While the third is the management of the potentially threatening dominance of economic actors.

How much of the intention to correct for the numerous negative externalities in our economic and business environment influence the taxation and regulation strategies of governments in Africa? How much of it inform the approach to control the choking traffic logjams in Lagos city due to the passenger hunting activities of the yellow bus and taxi drivers? Why have we not used it in checking the negative externalities of religious doctrines which combine with the “quota system” give birth to the insurgency in the Northern parts of Nigeria? As an extension to these is the planning of public goods provision that is driven by a maximum positive impact mindset as opposed to clannish and personal rule orientation. Thinking this way compounds the expected benefits from project and programmes that are embarked upon by the government and its non-state supporting actors.

The government in several African countries thrive on the divide and rule policy. Sometimes it is clannish and favours some ethnic groups relatively much better than other tribes. In some other cases, it might merely benefit a privileged group of people while the rest are in some dark. But in all of this, the most critical driver is the privileged information usually made available to a group at the expense of the other groups. It is this cronyism that fuels corruption in Africa by creating undue advantages and unwarranted surpluses for some while orchestrating poverty and economic losses for many others. In many ways, it has been behind insurgencies and tribal wars.

Again we are amidst towering entrepreneurs seemingly unproductive monopolies that exert significant dominance over certain and several aspects of the economy. The former deserves commendation when attained through fair and equitable competition. Unfortunately, that is usually not the case. Privileged information and special concessions and waivers denied other competitors formed the ladder structure for the climb. The real danger amplifies when these people dominate the industries in ways that empower them to define the policies that the government would follow instead of the other way round. They equally overgrow the government and its powers to sanction them.

On a final note, the government’s use of the tools of fiscal policy should ideally end up in prosperity. Fiscal spending should follow a virtuous pathway that leads to increased productivity, output, employment and income. Anything short of this would result in a reversal. Inflation will be up as most spending ‘will pursue a few goods’. Similarly, the taxation strategy must seek to reduce negative externalities significantly. It should also provide incentives that promote positive externalities. It is very much in the same light that the skyrocketing debts profile of many African countries is worrisome. Apart from about four countries, the rest of all the heavily indebted poor countries of the world are from Africa. It has to change.