Change of government role is key to reform

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.