Paternalistic state wants everyone to zip it while it muddles along
The government’s paternalistic streak is showing its worst side during the lockdown and current policymaking. Disparaging comments from trade & industry minister Ebrahim Patel about those modelling the effect of the crisis on the economy were ill judged and showed that the assumptions — and, most importantly, transparency on caveats — of such forecasts had not been studied.
The comments were targeted not just at the private sector but also at the National Treasury and SA Reserve Bankled modelling efforts.
The paternalism is that the private sector should be quiet because the government knows what is best for it.
This was the same argument used continually to stimulate faith in state-owned enterprises and investment in the economy during the state capture years against all the evidence.
It ignores the fact that there is information asymmetry and the private sector knows far better than the government the complexity of the economy’s operations and how shock propagation works.
Worse, however, the government’s continual appeal to a “V-shaped” recovery when consensus is against this in terms of global trade and tourism — let alone the fact the economy has never acted like this in response to previous shocks — actually damages the government’s credibility.
Such a paternalistic approach also assumes that decisions in the private sector are made on blind trust in what governments are doing and that executives and boards don’t have a duty to map and understand risks in real time themselves.
So-called “thumb-sucking” models are open to be torn apart by clients, investors and executives of those producing them (and indeed the government interacting on the details) and give a guide in a highly uncertain world for the private sector to operate effectively.
If banks, for instance, had taken everything on blind trust since the election of President Cyril Ramaphosa, they would likely now sit with inadequate capital, liquidity and unprovisioned impairments in the midst of a proper banking crisis.
The government has continued to refuse to release epidemiological modelling to scrutiny — but also not made clear how different stages of lockdown will be moved between on what health evidence grounds, nor how national vs metro-level lockdown differentials will work … nor how what economic activity and employment levels were chosen for what industries at what levels. Why do certain industries have 30%, 50% or 100% employment caps with seemingly little regard to differences between and within sectors? Why can shops not decide what is best to sell to people who have to stay at home in winter?
The strong impression given is that the need for 2-million extra people working in level 4 was decided upon and then the regulations were worked backwards from there, just as the 10% stimulus figures were decided on and worked backwards on — leading still to some gaps in how this will add up with any credibility.
During a policy design process, it should be asked: do we have the ability to make positive lists of everything that the economy is allowed to do? Do we understand how complex the economy is?
This introspection was clearly not done.
In a proper risk-adjusted framework where the private sector was trusted to abide by government-imposed health protocols, the complexity of the economy would within itself be able to resolve issues that are “uncountable” for the government.
The reality is that the government has far less data about how the economy operates than the private sector does.
Banks have highly detailed real-time data on what is being spent in what way, in what shops, exactly where and by whom in the economy, for instance. Companies are able to survey what is happening upstream and downstream in their supply chains and understand the interlinked nature of the economy. This is not just big companies, but small, medium and micro-sized enterprises and informal township businesses too.
The government seems at once to recognise that its rules aren’t perfect and so it needs to interact with the private sector to improve them, but not make the next realisation that it is the philosophical (and ideological) foundation itself that is the problem.
Those with common sense on these issues appear to be in a minority in the government, and the cabinet doesn’t appear to be using health or economic advisory structures in a proactive (rather than reactive) way to inject common sense into the process.
The government will always get there eventually. Step by step under pressure, as the economic carnage of policy choices made is seen — not just in business survival and unemployment, but the humanitarian outcomes on the ground.
This delayed response will have profound political consequences in the long run, but equally the common sense to see those political consequences seems to be missing at present.
THE PRIVATE
SECTOR KNOWS
FAR BETTER THAN
THE GOVERNMENT
THE COMPLEXITY OF
THE ECONOMY’S OPERATIONS
THE REALITY IS THAT
THE GOVERNMENT
HAS FAR LESS DATA
ABOUT HOW THE
ECONOMY OPERATES
THAN THE PRIVATE
SECTOR DOES