Tuesday, 7 June 2011

We need to fix the state

I seem to be writing more op eds than blog posts at the moment, but since the former are not being published I will post them here. Below is an article I wrote for Business Day relating to the civil service. It was in part response to these two pieces, but also building on my previous posts re the civil service question:

Gavin Keeton (an Anglo American manager-turned-academic economist at Rhodes who has a regular Business Day column):

An editor's note by Peter Bruce arguing that running the SA economy should be common sense (which I largely agree with) and that therefore it should be left to market forces (which I don't):

We need to fix the state

There are not many issues in South Africa on which one can say that there is a widespread consensus, but the suggestion that the state is failing to adequately deliver on its socio-economic mandate elicits support from across the social and political spectrum. Unfortunately, this consensus tends to quickly polarise into two camps: those who suggest that the state is failing because it has inadequate power and resources, and those – like Gavin Keeton (“Getting state to do more may worsen delivery”, Business Day, 9th May 2011) - who argue that because the state is failing its size should be minimised. Both views are dangerously simplistic. Giving additional power and resources to a largely inefficient and incompetent entity is clearly foolish unless the entity is overhauled. Arguing that an entity should be bypassed simply because it is currently dysfunctional is equally foolish.

In fact, the first view reflects an ideological (rather than fact-based) bias toward state intervention and the second a similar bias in favour of the private sector. Neither assertion can actually be supported by convincing empirical evidence of causal links from such institutional decisions to economic growth and development – despite some valiant attempts. While Peter Bruce (“The Thick End of the Wedge”, 9th May 2011) is wholly correct in suggesting that many economic policy decisions in South Africa should be ‘common sense’, the common sense solution to problems with the state is arguably to fix them, not bypass the thing altogether.

One reason this basic point is largely absent from the public discourse is because the majority of powerful interest groups in South Africa – from politicians (ruling and in opposition), to unions and big business – oppose public sector reform. In each case it is because it suits their short-term interests. Businesses run rings around incompetent government departments on regulation and tenders, unions protect incompetent members, ruling politicians have more pliant civil servants since the latter know that their jobs are not based on merit but acquiescence, and opposition politicians wish to avoid powerful state machinery under control of their rivals. In the medium- to long-run, however, we are all going to suffer a great deal from such incompetence. Eventually, the state becomes so incompetent it cannot even be engaged in regulation-related brinkmanship, service delivery becomes so bad that there is rising social unrest and economic decline results in public sector job losses due to the inability to pay the wage bill. You do not need to be a futurist to see this; it’s already happening.   

Despite the common sense, far too many individuals (in South Africa and internationally) have made very strong claims of this sort that are informed more by ideology than science. Unfortunately, a number of these are economists. A good example is provided by the economists cited by Keeton – Nobel recipients Joseph Stiglitz and Michael Spence. Despite the fact that their prize-winning work had very little to do with policy, or indeed macroeconomics, both have been elevated to a very high status in macroeconomic policy debates. In both cases this is problematic, although at least Stiglitz has acquired some policy experience over recent decades. Few academics like to criticise their colleagues and economists are no exception, but as the respected game theorist Ariel Rubinstein said in an interview recently: a significant number of economists have developed the bad habit of claiming greater policy relevance for their work than is justified, while also failing to reflect on their behaviour as self-interested actors. As a consequence, we should be wary of placing too much weight on the prescriptions of individual ‘experts’. Much like the (also Nobel prize-winning) economist Robert Lucas, “For my part, I have always been uneasy about the relationship between economic experts and policymakers... At the risk of being unduly ‘optimistic’, I would hope for the eventual return to a view of economic decision making in which our fellow citizens also take an informed part.

The private sector benefits from a competent state, which - while limiting its profits in some respects - will recognise its social value and determine policy accordingly. For the foreseeable future the size of the South African state, for political reasons if nothing else, is not likely to reduce. Thus, even advocates of a smaller state would do well to focus pragmatically on the issue of competence first. At the end of the 19th century, about 20 years after the American Civil War, the Civil Service Reform League was established in the United States to advocate for the importance of merit and competence in the state. Almost two decades after winning our democracy, South Africa appears to be in dire need of a similar movement. 

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