25 Apr 2000  Research & Ideas

Adjusting the Fit for Government

It is no simple task to strike the right balance between too much government intervention and not enough. And when corruption has seeped into a society at all levels, it's hard to know how to create an environment that welcomes investors yet does not neglect vital human services such as health care and education. Debating the balance for African societies and business were panelists with personal experience on the continent, in a conversation led by HBS Professor Debora Spar.

 

The role of government in Africa must be to establish an "investor friendly" environment, according to Obiageli Ezekwesili, a panelist at the Africa Business Conference's debate on "Government and the Enabling Environment."

As finance director of Transparency International, a Berlin-based nonprofit that supports "national integrity systems" to help curb corruption, Ezekwesili told the HBS audience that it's not enough for African governments to aspire to macro- and microeconomic stability.

photo of panel

"We saw the Asian tigers unravel as a result of corruption," she pointed out.

Panelist Dean Donovan, managing partner of Bain & Company in South Africa, said the imperatives for African governments are many, and are all intertwined. The key underpinnings include a health policy that deals with AIDS, he asserted. "Without that, there can be no productivity revolution due to the loss of skills in society.

"The other key underpinning is education," he continued. "In South Africa in particular, the legacy of apartheid was extremely destructive, and human capital continues to be underdeveloped. Foreign direct investment is critical to skills development."

Other essentials for governments, Donovan said, are a willingness to privatize businesses, and to follow the rule of law "as opposed to the rule of individual parties and special interests." Another is what he termed an appropriate balance of value creation while committing to "the righting of past wrongs."

"Africa is extremely poor," Donovan said. "And in South Africa there has been discrimination against blacks — who were left without skills and without an ownership in the economy. If you create a system that is completely open, these people will end up not owning a lot of the economy because of historical conditions. So there is an equity issue."

The right mix

"I think most governments try too hard [to do everything]," said panelist Udayan Wagle, a manager of the International Finance Corporation. "They try extremely hard to regulate and to be a really, really good father.

"Governments should encourage people to take chances and not hit them over the head with a hammer if they make a mistake."

The salient point, he said, is neither to advocate less government nor better government, but to press governments to allow space for business to work and innovate. The tenet of predictability is vital, said Wagle.

"If people are going to invest in very bad conditions, they have to know the rules of the game," he charged.

"Non-governmental organizations cannot take the place of society," Wagle added. "There are some very difficult places in Africa where the private sector is just not possible." Health, education and infrastructure should be under the wing of government, he said, with rules of openness and good conduct in place and enforced.

Rocking the corruption boat

Ezekwesili agreed that it is important to make government more efficient to do "what it ought to be doing." Citizens should reduce the level of discretionary power that government officials hold, she said, because that power gets abused. "Look at government as an equal stakeholder as much as the private sector is," she told the audience. "Our framework must contain the private and public sectors as well as civil society. No one sector has the gospel truth."

Ezekwesili described stumbling blocks that she has experienced in enlisting the private sector's help in various studies of corruption. The private sector has not always been keen to "rock the boat," she said, adding that the OECD has adopted a convention that makes it a criminal offense for a corporation to bribe a public official in an overseas country.

"There are many avenues to break every law when people don't have a desire to make laws work," observed Ezekwesili. "In Nigeria, every law we need to be a transparent nation is in the books. But every avenue to break those laws exists in the mind.

"The private sector must first have an interest in establishing a level playing field" for any law to matter, she said.

"We need to appreciate that it's easy for the private sector to accuse the public sector of inefficiency," she added. "I accuse the private sector of not providing elements of social responsibility.

"Why does the private sector have to wait for government to become an engine of change?"

Her organization, she said, works with countries at the invitation of civil society, the private sector and government. "You have to have all three," she said. "If you do not have that [cooperation], you have the problem of not knowing exactly who you're walking with.

"Transparency is nationally driven, not something transplanted," she said.

Beyond the telescope

Panelist Donovan of Bain & Company urged students in the audience to express their values at the ballot box in Africa and in the press. He also urged them not to let the specter of poor governments dissuade them from considering entrepreneurial careers in their home countries. "I see an enormous amount of opportunity for improvement, for personal wealth creation and for bettering the lives of others," Donovan said. "This takes people with initiative, commitment and training."

"Be fighters against corruption," Ezekwesili told the students. "We've got to look at our continent beyond the telescope which others use."

Panel moderator Debora Spar, HBS professor of Business, Government and the International Economy, suggested that companies in Africa should also lobby the political system in an open, public manner.

"It turns into corruption when it's secretive," Spar said. "Lobbying for specific favors also becomes corrupt. But lobbying for general principles – such as overly high taxes — is good.

"We need Africans lobbying in the U.S," she added. "There is a large opportunity to shape U.S. trade policy. Africa has fallen off the map. But there is an opportunity to shape the debate within the U.S. as well as in Africa."