Change of gov­ern­ment role is key to re­form

China Daily (Hong Kong) - - COMMENT - ZHU YUAN The au­thor is a se­nior writer of China Daily. zhuyuan@chi­nadaily.com.cn

What role should a gov­ern­ment play in busi­ness? This is a ques­tion that China and its gov­ern­ment must clar­ify now the Com­mu­nist Party of China has de­cided that the mar­ket will play a de­ci­sive role in the dis­tri­bu­tion of re­sources.

The role the mar­ket plays used to be de­scribed as ba­sic or fun­da­men­tal. This new def­i­ni­tion means that the mar­ket will play an in­creas­ingly ac­tive role in the al­lo­ca­tion of re­sources. But it would be wide of the mark to be­lieve that the gov­ern­ment will leave the mar­ket to de­velop on its own. To my un­der­stand­ing, the gov­ern­ment will try to get to know where the line is and toe that line rather than go be­yond it. This is ac­tu­ally a ques­tion of how to bal­ance the re­la­tion­ship be­tween the gov­ern­ment and mar­ket.

Lim Hwee Hua’s book Trans­for­ma­tion — Role of Gov­ern­ment in Busi­ness, which has been trans­lated into Chi­nese and pub­lished by Pek­ing Univer­sity Press re­cently, pro­vides some food for thought on how the gov­ern­ment can play a de­sir­able part in the mar­ket for the ben­e­fit of both the ma­jor­ity of res­i­dents and healthy eco­nomic de­vel­op­ment.

The first fe­male min­is­ter in the Sin­ga­pore gov­ern­ment, she has worked as the head of a Sin­ga­porean state-owned en­ter­prise and been ad­vi­sor to a num­ber of transna­tional firms. In her book, she has shared with read­ers some ex­am­ples of how a gov­ern­ment can par­tic­i­pate in busi­ness in a ben­e­fi­cial way.

What I ap­pre­ci­ate the most is her can­did­ness about whether a gov­ern­ment should get in­volved in busi­ness or not. She said that there is no right an­swer to the ques­tion of whether the gov­ern­ment is an enemy or friend in the mar­ket and nei­ther is there a pre­cise an­swer. Of­ten a gov­ern­ment takes part in the ac­tiv­i­ties of an en­ter­prise with the hope of pro­mot­ing a new in­dus­try or get­ting in where the mar­ket’s hand has failed to work or just try­ing to meet a pub­lic de­mand. How­ever, some gov­ern­ments may over­act only to make things de­velop in an op­po­site di­rec­tion. Some­times, a gov­ern­ment then finds it hard to get out.

She is right that a gov­ern­ment should never apol­o­gize for its par­tic­i­pa­tion in busi­ness, but it must know well about the dif­fer­ent roles it has to play. A gov­ern­ment can­not be too ob­sti­nate and should be flex­i­ble and ad­just to changes. A gov­ern­ment needs to fig­ure out the way to ex­ert its in­flu­ence in the mar­ket to the ben­e­fit of the econ­omy, she main­tains.

What she said in her book reminds me of the crit­i­cism many have im­posed on the Chi­nese gov­ern­ment for its in­volve­ment in the mar­ket. Some firmly be­lieve that a gov­ern­ment should never par­tic­i­pate in busi­ness and the in­vis­i­ble hands of mar­ket forces should be given free rein.

How­ever, ev­ery gov­ern­ment plays a role in the mar­ket in one way or another. It is un­fair to point the fin­ger at the Chi­nese gov­ern­ment for all the prob­lems that have arisen along with the coun­try’s rapid eco­nomic de­vel­op­ment. And it is naive to think that all the prob­lems will dis­ap­pear on their own when the gov­ern­ment re­laxes the con­trol it ex­erts over the econ­omy.

The fi­nan­cial cri­sis that broke out on the Wall Street in 2008 shows how the in­trin­sic mal­ice of cap­i­tal­ism and lais­sez-faire can be­come a mon­ster that knows no limit in its pur­suit of the max­i­mum in­ter­est.

What the Chi­nese gov­ern­ment has done in can­cel­ing a lot of ap­proval pro­ce­dures and del­e­gat­ing nu­mer­ous items for lo­cal gov­ern­ment ap­proval sends an ex­plicit mes­sage that it is chang­ing the way it gets in­volved in the mar­ket and will keep a dis­tance from im­me­di­ate and di­rect par­tic­i­pa­tion in busi­ness, which will re­duce the chances of in­ter­fer­ence in busi­ness by of­fi­cials’ abuse of power. This is un­doubt­edly the right thing to do for the gov­ern­ment.

How­ever, this does not mean that the gov­ern­ment should just stand idly by as an on­looker.

To reg­u­late mar­ket or­der in ac­cor­dance with the law and keep an eye on busi­ness op­er­a­tions lest some bend the rules in one way or another in or­der to gain the max­i­mum in­ter­est is the role the gov­ern­ment will now try to adapt it­self to.

The sub­tlety with which the gov­ern­ment at all lev­els can play this role well is no eas­ier to han­dle than what it used to do with its for­mer role. This is also where the suc­cess of the re­forms lies.

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