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Al-Ahram Weekly 21 - 27 October 1999 Issue No. 452 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 21 - 27 October 1999 Issue No. 452
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters The proactive state
By Adel Beshai *
Strange as it may appear the role of the government in a market economy is much more clearly understood than its role during any transition from a centrally planned to a market economy. And the reasons are not hard to discover. The ''visible hand'' exercised by governments in mature market economies developed gradually, in an otherwise unfettered capitalistic system. In those economies -- Egypt included -- moving from a command to a market situation, however, the spectre of an over-dominating government is never far away.
The simple fact is that privatisation -- the shift from public to private -- is in essence a new phenomenon. On the other hand the world has had plenty of experience of the reverse process, the shift from private to public.
Given these facts it is necessary we clarify the role of the government and in doing so will find that the government's role in a private economy is a much more tricky affair than in a centralised one.
Privatisation, of course, is not an end in itself. It is merely a means intended to facilitate the operation of the forces of supply and demand in the market. But for the market to operate efficiently there is a need for information, and for the prevention of monopolies, and herein lies the role the government. For it is government that takes the ultimate responsibility for ensuring that the market is allowed to operate efficiently whatever the shortfalls existing in developing countries.
But assuming that the government meets its role and the market functions efficiently, is this the end of the story? The answer is no. Government interference will remain necessary to ensure social equity, to reconcile private and social gains and to control macro economic and financial policies. Government will also retain responsibility for indicative planning.
It is important to emphasise that none of this is new and that such roles have been successfully undertaken in all advanced capitalistic economies. Economic freedom, after all, does not mean chaos. It implies freedom under law, a regulated freedom.
Rather than poring over the endless details dictated by the IMF, we might do better to reread Adam Smith and John Stuart Mill. The high priests of laissez faire and liberalism, they also wrote extensively on the role of the government in the economy.
Ultimately, we will more readily realise the role of government by coming to grips with details rather than concentrating on the macro picture. For example, engaging the private sector in infrastructural developments is perfectly acceptable, but it must be done carefully. In South East Asia the government took unnecessary risks and the result was failure. But in Latin America a different story emerges: the private sector entered in a different manner. There was competition for the sake of finding markets, but not competition inside the markets.
Another significant issue concerns good governance, a term that can at best be described, not defined. A person invests today and expects returns tomorrow. If the government realises this simple truth, it will also realise that its role, in a market economy, is to ensure continuity, transparency and predictability of policy. This point, or elements thereof, were outlined by Vernon at Harvard in the sixties. It remains an issue of pivotal importance and its impact is ultimately far greater than tax holidays of five or 10 or more years, or for that matter more important than good policies issued ad hoc.
Finally, the functioning of markets, and of government policies, however good they are, will only achieve results if the appropriate institutions are in place. It is no accident that we speak increasingly of institutional economies. Competition will not flourish except through the proper functioning of the institution. Nor is it just competition that matters: what also matters is the lens through which these institutions and government bodies see the competition.
In short, the new role of the government in a privatised economy is both more challenging and difficult than in a command economy. It calls for a proactive approach to governing. It calls, too, not only for the availability of information, but for its synthesising, and for a vision made available to everyone.
And when all this exists, the government should not be shy about its role. A private monopoly may well be worse than a
public monopoly and there will be instances when the government must intervene, restricting, when necessary, the private sector. This, in the end, is what steers the boat, while allowing the private sector to do the rowing.
* The writer is a professor of Economics at the American University in Cairo and a member of Shura Council.
