The mighty and the small

ENTREPRENEURS: GOVT CONTROLS YOUR DESTINY The purpose of business must equally apply to government.

The at-times cavalier behaviour of the United States under Donald Trump’s “America first” refrain raises a number of issues that could have a significant impact on the global economy. The more obvious, and one that can affect South Africa’s foreign trade, is the global trade war he has unleashed. Barriers to foreign imports have already triggered the inevitable tit-for-tat response from America’s main trading partners, including China, Canada, and Europe. There are seldom outright winners and losers in this game. The initial gains you make in reducing imports are invariably offset by a fall in exports, and you find yourself becoming more and more insular, until you lose your position and influence as a global trading nation.

It is counter-intuitive to a well-established principle, backed by years of World Bank research, that the success of a nation depends on having an external focus and developing its people. You can apply those same principles to a company and even to an individual. It amounts simply to a desire to make a contribution to the world around you, and developing the knowledge and skills to do so.

More significant is the impact this behaviour has on trust. Commerce has always been a proven counter to conflict, but the moment it is engineered for exclusive selfgain, it creates an imbalance and distrust. The US’s problem has been compounded significantly by its offhand approach to treaties, agreements and understandings; going back to its treatment of native Americans; the more recent scuttling of a highly valued Iran nuclear deal; reneging on climate change commitments; its propensity for covert involvement in regime change and many more. Sad to say, America is no longer as trusted a nation as it used to be.

This brings attention to the most significant aspect of all: the role governments play in our wellbeing: as individuals, as nations and as a global species. Governments are big, invasive and more in control of our destiny than any other single institution. As we saw with Greece and Italy, centralised authority can ride roughshod over the democratically expressed will of the people. It is the least trusted institution in most societies.

Yet they continue to grow. Not only in size as reflected in their claim on national resources, but in their regulation of citizen behaviour through legislation. The size of government is then used as an unsubstantiated premise to prove its role in national prosperity or poverty.

In South Africa, President Cyril Ramaphosa has earned some kudos for promising to review the size and structure of the government. Few will take issue with that, especially in the light of the disastrous performance of state-owned enterprises in recent decades and the high demands on dwindling revenue. There’s no question that we have a bloated, largely inefficient and wasteful bureaucracy.

Despite my own early fanatical aversion to state involvement in the economy and preference for private sector control of resources, a question that often irks me is what prevents the state or communities from having their own enterprises if they played to the same rules as those in the private sector? Of course that is a big “if ”, but arguably those rules are as easily broken by big, centralised economic power-houses and corporates as governments.

The Holy Grail of purpose that should apply to all business must equally apply to government. The rules of reward distribution: meeting the legitimate expectations of the participating stakeholders and encouraging continued contribution should also be followed. In short, one should follow common purpose and common fate principles where government is involved. That would imply, for example, that civil service pay could be flexibly linked to nominal GDP growth once guidelines have been established for the appropriate size of the government wage bill in relation to GDP.

Interestingly, that would make the current 7% public sector wage offer close to that norm.

Jerry Schuitema is a Moneyweb contributor