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Rent seeking and the MSB

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The Oxford Dictionary of Economics by John Black defines Rent as “spending time and money not on the production of real goods and services, but rather on trying to get the government to change the rules so as to make one’s business more profitable. This can take various forms including seeking subsidies on the output on the inputs of a business, or persuading the government to change the rules so as to keep out competitors, tolerate or promote collusion between these already engaged in an activity to make legally compulsory the use of professional services.”

The final part of the definition has some relevance to what the government of Malawi is planning to do about the Malawi Savings Bank. It is going to create a situation where those who will buy the MSB and Indebank will be making extra profits without necessarily providing extra services. They will do this by minimising competition in the banking sector.

Selling minority shares to private company is welcome in the circumstances but not majority shares. First this is on ideological grounds. Do we believe in a developmental state of laissez one? It is developmental states in the Far East that have transformed economies there. Our government has already sold many of its enterprises including Malawi Airways. If it sells the two banks what is the state going to own that is of significance.

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There is over-confidence in the ability of the private sector to develop the economy without substantial government involvement or guidance. The United States, during the time of President Ronald Reagan, and Britain under Prime Minister Margaret Thatcher deregulated and privatised many state firms. In 2007 and 2008 there came a financial meltdown that almost plunged the world into a depression similar to the Great Depression of the early 1930’s. Government had to step in and rescue companies including banks which through reckless expansions and lending had incurred debts, they could not clear.

One of the essential features of a market economy is the presence of competition between firms and the absence of man-made monopolies and oligopolies. If the government sells the MBS and Indebank to existing banks it will create oligopolies. The MSB and Indebank will remain separate banks only in name. In reality they will just be extensions subsidiaries or departments of the banks that will buy them. There will be no competition between these banks and those which will buy them. It is the public that will lose since now they will monopolise oligopolies or cartels.

If we have to sell the banks we must sell them to bidders who are not operating in the Malawi market. When the government of Malawi sold the Malawi Commercial Bank to Standard Bank this bank was not operating here. When the sale was made the number of banks remained the same not just in name but also in reality. The competition between National Bank of Malawi and Commercial Bank was maintained when the Standard Bank bought the Commercial Bank.

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In handling the MSB saga I get the impression that the government is panicky. When you try to deal with a problem while panicking you are likely to solve it by creating a bigger one instead. It seems the government has relied too much on its own handpicked advisors instead of availing itself of foreign advisors who have faced similar situations. The Royal Bank of Scotland nearly collapsed and had to be rescued by the British government. Has the Malawi government found out what the British government did to save the RBS? It did not compel Scotland to sell its flagship enterprise. What about experienced people in the Far- East where governments own banks as a matter of strict policy.

There is a lot of talk about the rules of Basel II, and get the impression that the MSB is entirely at its mercy. This is surprising for an institution of a sovereign state. In international treaties there are waivers for a member state in distress, for example there may be rules about free trade but when a member faces acute balance of payment problems and unemployment, it is allowed to impose or raise tariffs as a temporary measure. Are there no such waivers in the Basel Protocol?

Let the MBS misadventure be an occasion for soul – searching about efficiency and effectiveness in our public services. This strategy of running away from problems by selling national assets will one day prove to be jumping from the frying pan to the fire. There is general incompetence in the public services as well as widespread perfidy. Genuine attempts should be attempted to clear up the stable and start anew.

Lee Kuan Yew tells us in his autobiography that whenever he learned that what he wanted to do was being done somewhere successfully he would send his man to go and learn about it. Learning from others is the secret of progress.

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