Lesotho Times

The government has no business running businesses

ABOUT four weeks ago a friend of mine introduced me to an American citizen named Justin.
Justin was a philosophy graduate, aspiring novelist-turned-fulltime tourist who was on a visit to Africa.
He was around town that day, primarily selling pieces of short stories to enable him to purchase food on a day-to-day basis.
At the encouraging of my friend I decided to purchase one of his stories tentatively titled ‘Intro to Africa’.
I consider myself a frugal spender, and on that day I was not so eager to part away with my M5 without some good reason.
After giving it some thought I decided perhaps it would do me good to see my own country and continent through the eyes of a stranger, hence I bought the piece.
Before we parted ways I asked Justin as to his prognosis to the problems of Lesotho.  He candidly said: “The problem with Lesotho seems to be that people are always waiting for someone to come and solve their problems. The general public seems to always delegate problem solving to the government and the government to the international community.”
At first I may have sneered at what Justin said, dismissed his view as that of those who think just by virtue of their lighter pigmentation they can make a prognosis and concurrently prescribe a cure for the ailments of the ‘Dark Continent’.
As the days passed though, I began to meditate upon Justin’s words sans the initial irritation and somewhat began to think of what may have informed his viewpoint.
The fact of the matter is that argumentations in Lesotho at societal level have not changed much since independence, and many have never been satisfied with the economy regardless of the regime in power.
Economic growth has stagnated for years now and the recently passed economic recession has further exposed the structural weaknesses inherent in our economy.
A few pointers can be made in this regard, the first being that our economy is overly reliant on the revenue from export of textiles and diamonds.
In the second instance the productive capacity of the economy is not being fully utilised.
The debate that has recaptured centre stage among amongst economists the world over in recent times has been the extent to which the government should be involved in the economy.
The discourse is as old as the science of economics but because of challenges of our times economists and social scientists have had to revisit this topic more rigorously in recent times.
The government plays a crucial role in ensuring the rule of law and protecting property rights at the basic level.
This framework ensures that bullies and strong people cannot just decide to steal the assets of the weak.
Collective action also facilitates the creation of roads and telecommunications which will inevitably lead to lower costs for business.
As government involvement continues to grow however economic theory says the costs begin to outweigh the benefits via the law of diminishing returns.
In Lesotho this scenario has played itself out just as economic theory posits. The government over the years has increased employment directly by being the main employer.
Income taxes had to be increased to deal with the rising wage bill and the average person has suffered the brunt of a decreased disposable income.
In the March issue of Perspective, published by the Oklahoma Council of Public Affairs and available online, American economist Noel D Campbell examines four similar states (Oklahoma, Texas, Arkansas and Louisiana) which have pursued different policies regarding taxes, spending, income transfers and government employment.
“The evidence is very clear,” he writes. “States with the smallest growth in government experienced the best growth in desirable attributes.”
It seems to be that even with the best intentions from the part of politicians, larger government involvement in the economy leads to undesirable outcomes for the overall economy.
Government by its very nature is inefficient because it is not a profit-oriented entity. Private enterprise will almost always outperform governments in service provision because entrepreneurs are more motivated to perform their jobs than bureaucrats as their very livelihood depends on it.
The role of government should be to create and facilitate an environment that will ensure that small and medium businesses thrive.
Currently the environment for small businesses is not the friendliest and even more so for international investors.
The process of registering a business needs to be simplified for budding entrepreneurs. Lower corporate taxes and less bureaucratic red-tape will ensure Lesotho becomes an investor friendly country.
Internationally the likes of China and Brazil have moved for greater deregulation and transparency which has led to greater investment and flourishing economies.
In the classical sense too much government involvement ‘crowds outs’ business and in the long-run retards growth.
The government cannot grow the economy nor spur employment over the log-run. This is the job of business and the duty of government is rather to create an enabling framework.
Perhaps Justin was right then. But first the government has to play its part, while we get off our butts as good citizens of the Mountain Kingdom.

Lechesa is a freelance writer based in Maseru.

Lesotho Times

Lesotho's widely read newspaper, published every Thursday and distributed throughout the country and in some parts of South Africa.

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