A-M u s i n g s: The Prudent Government

Musings are thoughts, the thoughtful kind. For the purpose of these articles, a-musings are thoughts that might amuse, entertain and even enlighten.

Wednesday’s STAR is, for now at least, no more; sad, really, but not unexpected. VAT, a tax I fully support, probably contributed to its demise. A zero-VAT newspaper is more attractive because the price remains the same. For the producer of the product, it is a nightmare because all the VAT paid out for paper and ink etc. cannot be reclaimed or offset against the VAT received. And so Wednesday’s STAR and its  voice of reason and protest died. So please allow me to muse a little.

The growth of a domestic economy requires a mighty increase in private sector investment and encouragement through government investment. A prudent government, unwilling to borrow itself into oblivion, must rely on income from its assets that comprises its citizens and businesses.

It does not make sense for government to risk investing borrowed money in state-run enterprises and charitable programs. Instead, government should encourage private enterprise through general-purpose reforms and investments to improve the private business environment, its utilities, services, and social policies to raise the sum of human and investment capital.

That prudent government promotes diversification in the economy to create new demands for labor, services and goods from local sources. Our, to some excessive, dependence on tourism exposes the economy to volatility, and discourages investments in other sectors.

The prudent government will not fund projects that would have been done anyway; this merely transfers public funds to private shareholders, or supports projects that will never become competitive, creating a drain on public resources but no basis for growth.

NTN is one such example; don’t get me wrong: NTN does a great job, as does RSL, but by law, or so I believe, all radio and television stations are, or were, obliged to provide government with a certain amount of airtime each day. Why then, except for party-political purposes, do we need government mouthpieces?

Solutions to conflicts arising between supporting capital-intensive projects, which may be more profitable, and labor-intensive projects that contribute to employment, reside in the social, not political, project returns. Government, or public, expenditure must help reduce the cost of doing business by improving infrastructure and the quality of the labor force. Also, the private sector must be involved in the decision making process to encourage all parties to contribute to shared objectives, and to increase the chances of success.

The cost of doing business is high in developing countries where poor quality infrastructure, an irregular supply of utilities, and low productivity, make the economy inflexible and unresponsive to new opportunities. We need competition. Lucelec has to relinquish its pampered position. Let others willing to take the risk invest in producing cheaper power.

Infrastructural projects such as the construction of transport links that serve tourism should be designed according to cost-benefit principles for society as a whole. Improvements in health, education and training benefit society by raising labor productivity.

Generally, even the prudent government is unlikely to know where to invest. For every successful commercial venture, there are many more unsuccessful cases in which firms and industries have failed to attain long-run commercial viability.  Because policies should be designed to reward success, not failure, assistance should be subject to performance requirements that determine success and failure. Subsidies should be linked to performance, quality, and reliability, which in the long run means that subsidies will help create companies that are successful and can contribute to the economy.

The prudent government will withdraw and withhold support from failed or failing policies and sectors. There should always be an automatic sunset clause, stating clearly the maximum period for which support should be offered. Above all, government and business need to be separate in order to minimize the risks of corruption, such as rent-seeking and cronyism. Well, that’s enough for today!