Emmanuel Acquah-Sam’s (Ph.D) thought’s … The engine of inclusive sustainable economic growth and dev’t: How soon?

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Todaro & Smith (2006, p.811) define economic growth as “The steady process by which the productive capacity of the economy is increased over time to bring about rising levels of national output and income”.

Economic growth means an increase in an economy’s output of goods and services in a particular year relative to the previous year’s output of goods and services. Economic development also refers to an improvement in citizens’ quality of life emanating from long years of economic growth.

Economic development is visualized from changes in the structure of an economy from an agrarian society to an industrialized and service led society, increased wealth, improved health, access to better education, good housing, access to drinking water, improved sanitation systems, increased life-expectancy, better foods, greater choices, more job opportunities, new technologies, and large scale infrastructural development. Development should be viewed as a multi-dimensional process involving the reorganization and reorientation of entire economic and social systems (Todaro & Smith, 2006).

Economic history shows that countries have transitioned from underdevelopment to development as described by Walt Whitman Rostow. The economists of the 1950s and early 1960s viewed the processes of economic development as linear stages through which all countries must follow, given the appropriate amount and combination of saving, investment, and foreign aid.  This economic growth path was a way of mimicking the historical development experiences of the more developed countries. As a result, economic development was akin to rapid aggregate economic growth. Economic growth and development must be inclusive and sustainable.

The United Nations Development Programme (UNDP, 2017:p.4) defines inclusive growth as “… broadly shared prosperity resulting from economic growth.” Inclusive economic growth must narrow inequalities in an economy. Mensah & Casadevall (2019: p.1) write that; “Sustainable development centres around inter-and intragenerational equity anchored essentially on three-dimensional distinct but interconnected pillars, namely the environment, economy, and society…” Inclusive and sustainable growth must help people to contribute to and benefit from economic growth with minimal impact on the environment.

  • Private Sector versus Public Sector in Inclusive Sustainable Economic Growth and Development

Various economic agents combine forces to contribute to inclusive sustainable economic growth and development. These economic agents can be broadly divided into the private sector and the public sector. The role of the private sector and that of the state in promoting inclusive sustainable economic growth and development continue to attract the attention of development economists, academics, policymakers, and the citizenry of nations of the world. Whereas some have touted the private sector as the engine of inclusive sustainable economic growth and development, many have also held contrary views.  Spicer & Bousquet (2019), Allison, Dewa, & LeBlanc (2012), Samuels & Djigma (2016), UK aid (2011), and the World Bank (2004) write that the private sector serves as the engine of economic growth, because it creates jobs, increases trade, provides goods and services for the citizenry and generates tax revenue for government to finance basic public infrastructure.

The African Development Bank Group (2011) examined the role of the private sector in Africa’s economic development, and reported that the sector is Africa’s engine of economic growth, because it accounts for over four-fifths of total production, two-thirds of total investment, and three-fourths of total credit to the economy, and employs 90 % of the employed working age population.

A vibrant private sector in which micro, small, and medium size enterprises thrive alongside large firms and labor intensive activities can also flourish is required to achieve economic outcomes that lift greater numbers of people out of poverty requires. However, the sector is constrained by legal and regulatory environment, access to infrastructure and finance, human capital and skills development, entrepreneurial development, and corporate governance.

There is the view that the actual economic unit that assumes the role of engine of inclusive sustainable growth and development is better assessed during periods of normal economic life and during periods of economic crisis as well as historical developments. For example, development in many industrial countries is sad to have been shaped by their experience with the great depression, major wars, and the threat of communism (Tanzi, 1997:p.7, 8)). Dearden Nick, the director of UK campaigning organisation Global Justice, on Health Opinion on Aljazeera writes that “It has been clear for more than 150 years that the free market creates substantial inequality and destruction even in the best of times. But when it comes to a crisis, reliance on the market can cause unimaginable devastation.”

Furthermore, the role of the state or the private sector in economic growth and development is viewed to depend on the level of development of an economy – developed, underdeveloped, or developing (Tanzi, 1997, p.7,8; Spicer & Bousquet,  2019; Utterwulghe, 2014, Samuels & Djigma, 2016). The private sector is an engine for growth and stability in fragile countries. In countries affected by fragility, conflict and violence, the private sector plays a critical role in providing jobs and income (Spicer & Bousquet, 2019). The private sector has been identified as a key player in delivering inclusive sustainable economic growth and development in both developed, developing, and underdeveloped countries. It has been recognized as an avenue for achieving rapid industrialization as well as poverty alleviation and other developmental goals in developing countries (Hoedoafia, 2019).

Again, the views have been extended to include whether the state has any relevant role in economic activities at all. In the 1980s, the Neoclassical Counterrevolution development theorists argued that underdevelopment resulted from too much state participation in economic activities coupled with corruption, inefficiency, and lack of economic incentives (Todaro & Smith, 2006).  The Encyclopedia Britannica has it that the emergence of the neoclassical counterrevolution coincided with the withdrawal of developed countries from social democratic and Keynesian economic policies. Critics of the theory say that it was the cause of the spread of market-oriented interventions by the World Bank and International Monetary Fund (IMF) and efforts to synchronise global market activities regulated only by institutions reflecting the interests of transnational capital. Todaro & Smith (2006) write that the neoclassical view of development was divided into three themes: the free-market approach, the public-choice approach, and the “market-friendly” approach.

The free-market approach explains that markets alone are efficient in allocating scarce sources. Also, the public-choice theory, says that governments can do nothing right. That is politicians, bureaucrats, citizens and states act solely from a self-interest perspective using their power and the authority of government for their own selfish ends. They conclude that minimal government is the best government. Furthermore, the market-friendly approach explains that governments do have a key role to play in facilitating the operation of markets through ‘nonselective’ interventions, through investing in physical and social infrastructure, healthcare facilities, educational institutions, and by providing a conducive environment for private sector growth.

For instance, Peterson (1984) writing on the economic history of America tells us that starting from the 19th century, most United States of America governments were reluctant to involve the Federal Government too heavily in private economic activities, except in the area of transportation. The role of the federal government was influenced by the concept of “laissez- faire”. However, after sometime, owners of small businesses and farms, as well as labour movements began asking government to intercede on their behalf.

Additionally, the views of others have been whether the private sector or the state can impact on inclusive sustainable growth and development in isolation. The Encyclopedia Britannica has it that the differences in rates of growth of economies are often attributed to government and entrepreneurship (private sector) which are not mutually exclusive. In the early stages of sustained growth, government has often provided the incentives (the development of transportation, power, water, financial inducements, subsidies, etc.) for entrepreneurial growth. In the 19th century, the main role of government in a developed capitalist system was seen to preserve law and order, defining private property rights, and giving business as much freedom as possible.

However, the Great Depression of the 1930s caused many to believe that laissez-faire system did not automatically provide the necessary incentives to the innovation and risk bearing essential for economic growth and at the very least, governments could undertake to prevent acute recessions. It is only through this that general business psychology (entrepreneurial skills) can be nurtured (https://www.britannica.com/topic/capitalism). In Allison, Dewa, and LeBlanc (2012: p.19) report to the House of Commons, Canada, Bonnie Campbell, a professor in the Faculty of Political Science and Law at the Université du Québec à Montréal, is mentioned to have told the Committee that investigated the role of the private sector in international development that, “Investment in the private sector of itself does not translate into sustainable economic and social development. There is in fact no historical example anywhere on earth where sustainable growth, social and economic development, and poverty reduction took place through private investment in the absence of appropriate public policies and state interventions needed in order to plan, to regulate, and to monitor investment so that the presence of private investment would be harnessed to meet development objectives determined by the countries themselves.”. After independence, most African governments pursued state-led economic development strategies based on import substitution industrialization.

To manage this process, governments created large public administrations, while the private sector was marginalized. Unfortunately, this state-led economic development strategy proved to be unsustainable which resulted in the continent’s real GDP growth averaging only 4.5 % per annum over 1960-1980, with real per capita income growing on average by only 1.7 % over the same period (African Development Bank Group, 2013).

 The differences in views expressed by development economists, academics, policymakers, and the citizenry about the real roles of the state and the private sector in economic growth and development have contributed to the extent to which resources are owned, distributed, and how countries have been organised and managed overtime. This paper, specifically, seeks to throw more light on the critical role of the state in promoting inclusive sustainable economic growth and development. It will help to elucidate the arguments surrounding which particular sector of the economy holds the key to inclusive sustainable economic growth and development and spur further research in the area.

  • Exclusivities of Governments’ Roles in Inclusive Sustainable Economic Growth and Development

Among governments’ exclusive roles in promoting inclusive sustainable economic growth and development are as follows:

  • Smoothening markets activities: Governments generally work to smoothen the workings of the economy in areas where the private sector (markets) fails to play its role efficiently in resource allocation and promotion of economic growth. The existence of monopoly power, externalities, information asymmetry, and public goods cause markets to fail in allocating resources efficiently. Governments, therefore, tackle these sources of market failures through the introduction of taxes, laws, regulations, pollution permits, and governmentcampaigns to change people’s preferences to address negative externalities and monopoly power. Also, subsidies are paid to producers who generate positive externalities.

Governments charge road tolls and facilities user fees to address the problems of free riding and congestion emanating from the use of public goods and services. They direct market players to provide relevant information for effective exchange of goods and services among producers and consumers to address the problem of information asymmetry. The Office of Fair Trading (2009) in Great Britain reports that in 2002 the government regulator for gas and electricity markets in Great Britain., Ofgem, imposed a penalty of £2 million on London Electricity for breaching selling regulations.

  • Promoting better macroeconomic performances: Macroeconomic policies are used by governments and other policy makers to improve economic performance and well-being. Governments’ macroeconomic objectives are intended to promote economic growth and stability, control inflation, long term low interest rate, increased employment opportunities, financial inclusion, favourable balance of payment and terms of trade, equitable distribution of income and wealth, providing incentives for capital accumulation and investments, and employment growth through the formulation and implementation of appropriate fiscal, monetary policies, and industrial policies as well as supervision of private sector activities. For example, during the Great Depression of 1929 in the United States of America, President Franklin D. Roosevelt and other policymakers created the Federal Deposit Insurance Corporation(FDIC) and the Securities and Exchange Commission (SEC) to protect banking deposits and regulate stock market trading. Government spending also increased at the beginning of World War II, and these changing conditions helped reverse the economic depression of the previous years. Also, in the early 1980s, President Ronald Reagan’s tax cuts and increased military spending stimulated the American economy for growth (Investopedia, 2015). Furthermore, as a means of reducing the problems of unemployment in Ghana, the government of Ghana, through the Nation Builders Corps (NABCO) programme initiated in November, 2018 provided employment to about 100,000 young unemployed tertiary graduates across seven modules of the scheme namely, Educate Ghana, Heal Ghana, Feed Ghana, Revenue Ghana, Civic Ghana, Digitise Ghana, and Enterprise Ghana (Ministry of Finance 2019).
  • Driving, sparking, stimulating, and lubricating the private sector for growth: UK aid (2011) has it that, the private sector is more than just the engine of growth… By creating job opportunities, providing new goods and services including financial services to the people and by paying taxes, it contributes immensely to the society. Its ability to innovate and do things more efficiently allows societies to achieve more with the resources at their disposal. There is no one recipe for growth, but getting investment levels up matters and getting the environment right for the private international and domestic sector to invest and thrive is crucial. Though it highlights how the private sector serves as the engine of economic growth, but it concludes that whatever the private sector can do depends on the provision of an enabling environment for growth and this is provide by the state. Rodriguez (2019) explains that private sector engagement is about governments and other public sector actors collaborating to improve the security, governance, and economic environment that enables investment, job creation, and widespread prosperity. A state with its numerous institutions is like a big tree with many branches. The state functions like a tree and the numerous private sector business firms function like the branches of the tree. The survival of the branches (private sector firms) depends on the health of the tree in supplying water and nutrients to the branches (the private sector firms). Since fiscal policies, monetary policies, and industrial policies, as well as basic and major infrastructural facilities are provided by the state to ensure efficient running of an economy, the state serves as a driver, sparker, and lubricator, and stimulator of the private sector for economic growth and development. Though, the state also has its deficiencies in resource allocation and the management of the economy, a poorly functioning government portends an economic doom. It must also be borne in mind that, bad government policies and poor supervision of the private sector’s activities may cripple an entire economy. For example, the government of Ghana, under the Food Crop Production module, provided subsidies in the form of 12,000mt of organic, 821,778mt of blended inorganic fertilizers, and 24,000mt of improved seeds valued at GHS0.6 billion to about 1.9 million farmers. Additionally, to ensure safe launching and landing of artisanal fishing and to create and maintain hygienic environments as well as create potential job opportunities within the fishing communities, construction of eleven (11) coastal fish landing sites at Axim, Dixcove, Elmina, Moree, Mumford, Winneba, Senya Beraku, Fete, Teshie, Keta and Jamestown in Ghana had commenced in 2019 (Ministry of Finance, 2019).
  • Mitigating social vices: The free market system worsens the plight of the poor or the vulnerable in society, because the culture of “weism”, whereby each person is another’s keeper is lost on the people. Some citizens become self-centered (egoists) and attempt to maximise their satisfaction or wealth at the expense of others. Although hard work among the citizenry of a nation is encouraged, it must be emphasised that nation building is not always about wealth creation, but also about how the wealth is created and its net effect on society. Amassing wealth does not necessarily lead to happiness, peace, security, and contentment. The inability to meet these needs has contributed to the spate of social vices such as drug abuse, prostitution, gigolo, internet frauds, burglary, armed robbery, etc. Most of those who engage in these evil acts feel that they have been given a raw deal in life and that they target the well-to-do in society and rob them of their riches, maim and kill them. Others, in an attempt to have places to sleep and survive, have built slums that have become hubs of criminal activities. People built houses on water courses which cause perennial floods in major cities. All these have put a strain on governments’ budgets as attempts are made to mitigate them. The greed associated with the free market system (the desire to amass wealth by individuals) will continue to pose a threat to the global world as suggested by former Chief of the Federal Reserve, Alan Greenspan (Thursday, September 10, 2009 edition of the Daily Graphic). According to the September 5, 2009 edition of the IMFSurvey Magazine, the Head of the IMF, Diminique Strauss-Kahn, told reporters after the G-20 London meeting that, “We are seeing the third wave of the crisis, which is rising levels of unemployment”. Governments have setup livelihood empowerment programmes (LEAP), national disaster management organisations to tackle disasters which are both natural and artificial in nature, mental and rehabilitation centres and the security employed to fight crime in the society. The Bible states categorically that, the love of money is the root of all manner of evil. Many in their quest for too much money have brought a lot of pain to themselves (I Timothy 6:10). We should remember that godliness with contentment is great gain. We brought nothing into the world, and it is certain that we can carry nothing out of the world (I Timothy 6: 6-7).
  • Undertaking financial sector cleanup, stabilisation, restructuring, and providing of stimulus packages to address economic meltdowns or recessions: Financial instability and crisis, and global economic recessions with their adverse effects on both developed and developing nations have been caused by the activities of business firms and consumers in markets. For instance between 2006 and 2008 many economies of the world led by the United States of America experienced financial crunch. In 2008/9, to save economies from the catastrophic effects of credit crunches and its associated economic recessions, various forms of stimulus packages were introduced by governments of affected countries. The United States of America (U.S.A.), under Ex-President George Walker Bush, in 2008 introduced the Emergency Economic Stabilization Act to bail out the U.S. financial system from financial distress. This law authorised the United States Secretary of the Treasury to spend up to Seven Hundred Billion US Dollars ($700 billion) to purchase distressed assets (bad assets) from US banks, reduce uncertainty regarding the worth of the remaining assets, and restore confidence in the credit market (Nolen, 2008). On February 12, 2009, the U.S. Congress approved the American Recovery and Reinvestment Act(ARRA) under which President Barack Obama’s stimulus package to the tune of $787 billion to resuscitate the ailing American economy in the form of tax cuts and direct government spending targeted at working families, seniors, homeowners and the unemployed, and to ensure that home owners maintained their homes which were bought through mortgages (Amadeo, 2020). The German government also proposed 50 billion Euros stimulus package to lift the German economy out of the recession. In April 2009, the “G-20” (the highly industrialised nations of the world) in addition to other regulations voted $1.1 trillion to tackle the problem globally. As part of the measures to reduce the effects of the global crisis on developing countries, the IMF pledged to increase its concessional lending by 17 billion dollars from the time of the crisis to 2014 (com , November 10, 2008 – February 4, 2010).

 In Ghana, The Finance Minister, Mr. Ken Ofori-Atta, stated in the 2020 Budget Statement presented to the Parliament of Ghana that the government of Ghana spent about $11.7 billion (about GH¢64.7 billion) on the banking sector clean up that started in August 2017 as government attempted to save depositors and investors’ funds that were locked up in failed financial institutions. Government spent about 1.5 million cedis, to provide relief to depositors when the Bank of Ghana revoked the licenses of 347 microfinance institutions, 15 savings and loans, and 8 finance houses. These were to ensure a well-capitalised, solvent, liquid, profitable, and resilient financial sector to support the economic growth agenda of the government of Ghana. When the banking sector reforms began in August 2017, total assets of the banking sector was GH¢89.1 billion for 36 banks. Two years into the reforms, total assets had increased to GH¢115.2 billion at the end of August 2019, even with 23 banks. Total deposits improved from GH¢55.7 billion to GH¢76.0 billion over the same period, reflecting a stronger deposit base, as a result of increased trust and confidence in the banking sector (Ministry of Finance, 2019).

  • Fighting pandemics: Today, COVID-19 has brought the economies of the world to their knees. As a result, nations have resorted to lockdowns, closure of national borders, ports and harbours, as well as imposing bans on social and religious gatherings – defying cultural and traditional practices. These actions have crippled the production of goods and services, employment of resources, movements of human beings, and goods and services. Governments all over the world are at the forefronts of their nations’ fight against the spread of the disease to preserve the lives of their citizens and to bring back economic life. For example, the government of Ghana in addition to other social interventions like supplying food to the needy in societies, reducing electricity and water bills, voted 600 million cedis to support 200,000 businesses and industries that have been hit by the coronavirus pandemic in Ghana at a relatively low interest rate of 3% power their operations so as to contribute effectively to economic recovery and growth (Boney & Andoh, 2020). The Central Bank of Ghana has taken measures to mitigate the negative impact of the outbreak, by cutting back on interest rates and reserve requirements, and decreasing banks’ conservation buffers. The Policy Tracker (2020) of the IMF reports that the government of Ghana committed US$100 million to support preparedness and response, and about US$210 million under its Coronavirus Alleviation Programme to the promotion of selected industries (e.g., pharmaceutical sector supplying COVID-19 drugs and equipment).

Again, on March 27, 2020, the German Parliament adopted various legislative amendments towards the implementation of the COVID-19 Governmental Protective Shield. This led to the setting up of Economy Stabilization Fund (ESF), equipped with €600 billion to be disbursed as follows: about €400 billion for public guarantees to secure credits issued by local banks; about €100 billion for recapitalization measures by way of participation in subordinated debt instruments, hybrid bonds, silent partnerships, convertible bonds and even through direct equity investments; and about €100 billion for refinancing of special programmes issued by the German Development Loan Corporation. The German government on the same date established an emergency liquidity programme for small companies, self-employed professionals, freelancers and farmers with a total volume of €50 billion under which the small companies with up to ten employees can receive up to €15,000 as one-time non-repayable grant to cover the operating costs (Pappalardo, Russo, Stamm, Rumohr, and Keller, 2020).

The Policy Tracker (2020) reports some of the key policy responses to COVID-19 in the United States of America as of April 30, 2020. Among the policies  were: US$484 billion Paycheck Protection Program and Health Care Enhancement Act  which were to be disbursed as follows: US$310 billion for additional forgivable Small Business Administration loans and guarantees to help small businesses that retain workers; US$60 billion to provide Small Business Administration grants to assist small businesses; US$75 billion for hospitals; and US$25 billion for expanding virus testing. Again, an estimated US$2.3 trillion Coronavirus Aid, Relief and Economy Security Act (“CARES Act”) which includes: US$250 billion to provide one-time tax rebates to individuals; US$250 billion to expand unemployment benefits, US$24 billion to provide a food safety net for the most vulnerable; US$510 billion to prevent corporate bankruptcy by providing loans, guarantees, and backstopping Federal Reserve 13(3) programme; US359 billion in forgivable Small Business Administration loans and guarantees to help small businesses that retain workers; US$100 billion for hospitals, US$150 billion in transfers to state and local governments and US$49.9 billion for international assistance including SDR28 billion for the IMF’s New Arrangement to borrow.

Conclusions

 The private sector is opined to be the engine of inclusive sustainable economic growth and development, because in comparison with the state, it creates more job opportunities, it increases trade, it produces more goods and services for the citizenry, and generates more tax revenue for governments to finance basic public infrastructure. Exclusively too, governments directly produce goods and services for domestic and foreign users, provide law and order, define property rights, embark on large scale infrastructural development; formulate and implement credible national policies; address financial sector instabilities and crises; markets failures, manage economic recessions and global pandemics through offering of stimulus packages to private sector enterprises and individuals. Governments provide the necessary lubrication, drive, spark, and stimuli to propel private sector growth and the growth of the economy as a whole. Getting the environment right for the private domestic and international sectors to invest and thrive is crucial for economic growth and development. Governments co-ordinate and contribute to the development of the economic, political, technological, legal, competitive, social, and cultural environments of their economies. In a nutshell, the growth and success of the private sector hinges on an efficient public sector. In the light of this, the failure of governments in playing their expected critical roles in societies results in economic doom. It is recommended that the roles of the state and the private sector in promoting inclusive sustainable economic growth and development must not be mutually exclusive. Every economy must seek to provide the precise balance between private sector and state planning that will lead to inclusive sustainable economic growth and development.

>>>The writer is a lecturer at Wisconsin International University College, Ghana

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