State capacity and long run economic performance

Tom Sangala March 16, 2016

450 3 minutes read

When recently the Public Affairs Committee (Pac) convened an indaba, most attendees assumed that their role was to point out government errors and omissions which had led to the economic deterioration especially with regard to the food situation. This raises the questions as to the role of the state in economic transformation both in the short and long runs.

The great English economist John Maynard Keynes (1883- 1946) laid down that the state should not do those things which private people are already doing, but should be doing those things which are necessary but no-one else is doing them. The advice involves both ideology and capacity.

There are people especially in the United States who are opposed to what they call big government. They would like the government to provide only public goods such as security from dangers within the country and defend against dangers from abroad. In other words, the state or government should have both the police and defence force.

Over and above these functions, the state should provide the physical infrastructures of the country, roads and bridges because private firms are often unwilling and incapable of providing them. The state should make laws guaranteeing security of private property and set up courts to enforce contracts.

There are people who however feel the government should do more to effect the economic transformation of the country. Economic transformation takes place if there is political transformation. Politics and economics are closely related and this is why in the past what is nowadays known as economics was called political economy.

Modern civilisation has been mostly influenced by the industrial transformation that took place in Europe and North America after the renaissance and the reformation. Economic transformation was most pronounced in those countries where there had been transformation from feudalism to national governments capable of instituting central fiscal (tax) structures and central armies, such countries were Britain, France and the Netherlands.

The most obvious political transformations have been revolutions such as those of independence from colonial rule in America following the declaration of independence as well as independence movements in European colonies in Africa and Asia. Perhaps the most dramatic transformation was that which took place in Russia from monarchy and capitalism to communism and republications in 1918 and then 70 years later reversed from communism to capitalism. How much do these political transformations influence the economic transformation of a country?

After World War II, political transformation in Asia and Africa were the same. Within 20 years, colonies were transformed into independence states. But the impacts on economies were quite different in the two countries.

Many writers on the newly industrialised countries of the Far East otherwise known as the Four Tigers tell us that at the time they gained their independence, Ghana’s per capita income was higher than that of South Korea. But within 30 years, South Korea’s development had not just surpassed that of Ghana but had transformed it from third world to first. South Korea had joined the club of wealthy countries called Organisation of Economic Cooperation and Development (OECD). Why had political transformation in Ghana not affected its economy in the same manner since both countries had started with strong economic agenda.

In 1994, Malawi experienced political transformation from one party rule to multi-party rule. At the same time, South Africa underwent political transformation from minority rule to majority black rule. How has political transformation impacted on these countries?

During the one party era, Malawi was classified as one of the 10 poorest countries of the world but its per capita income was higher than that of Burkina Faso, Mali and several other countries. During the past 22 years of the multi-party system, Malawi has not just remained one of the poorest 10 countries of the world but according to certain accounts, it has become the poorest of the poor.

Political transformation in South Africa has not impacted much on the economy. From being the biggest economy in Africa it has lost that status to Nigeria. Besides the latest information we have is that its annual growth rates have dropped to less than one percent while the once stagnant countries North of South Africa such as Mozambique are growing at rates as high as seven percent.

These days, as never before, the development of a country depends on its political system and what is more important is how that system is managed. In Malawi, the multi-party era has experienced weaker growth rates. There is short termism in economic programmes those which attract votes. Programmes of long term impact have been given symbolic attention and yet they are the ones which could have transformed the economy.