25 Mar 2002  Research & Ideas

The Trick of Balancing Business and Government

Institutions, such as a competent judiciary, an efficient civil service, and a good highway system, are all important for African countries. But who creates them? And what should be the role of business in the mix? At an Africa Business Conference panel session called "Institutional Foundations," five experts weighed in.

 

Asked which institutions must be in place in order for African countries to grow, experts on a panel at the Africa Business Conference had no shortage of suggestions.

One panelist, representing the International Monetary Fund, voted for a capable judiciary; a development specialist at the John F. Kennedy School of Government at Harvard University chose business and government ethics and a good infrastructure for attracting business; while a third panelist selected civil society.

Discussion and debate ensued among the five panelists, led by moderator Debora Spar, an HBS professor, at the session called "Institutional Foundations," sometimes drawing in questions from among the approximately sixty audience members, mostly MBA students, who attended the March 8 conference.

...trying to build institutions is like building sandcastles. There is no foundation.
— Nkosana Moyo,
International Finance Corporation

Yet over the course of the hour-and-a-half long panel session, the conversation kept circling back to the question of true ownership: Who creates these institutions, and for whom? How can African countries themselves steer their own destinies? How much, if any, input from outsiders, including the International Monetary Fund and the World Bank, is desired?

No country can easily exist in a vacuum and cut itself off from the global economic marketplace, commented Spar. Given the complicated and often tragic legacy of slavery and colonialization, most panelists agreed, it is no simple matter to rank the importance of myriad institutions. Minimum conditions of basic education, transportation, and communications must be in place; but the question of institutions remains centered on basic empowerment. According to panelist Nkosana Moyo, a native of Zimbabwe and a senior adviser to the International Finance Corporation, institutions directly intersect with issues of culture and national identity and, therefore, ownership.

When Africans walk on a path that they themselves define, they will move much faster, Moyo said.

"Everyone who's just wandering around trying to build institutions is like building sandcastles. There is no foundation," he said, citing the analogy of a bricklayer and an architect. "The ones appearing to do the job initially are bricklayers," he said. "The master planner is the architect: someone who can close his eyes and see a building before it exists." Africa needs more dreamers who feel empowered enough to produce their own blueprints for their societies to move forward, he said.

"It is the production of the blueprint which is the test."

Where business can and can't go

Business can play a critical role in developing institutions for better—and occasionally for worse. The boundaries between business and government need to be clearly defined, said several panelists.

Mauritius is one example of an African country that successfully balances business and government, according to Elliott Harris, a division chief in the IMF African division and a native of Trinidad. Whenever Mauritius has major legislation on the table, said Harris, "it runs that legislation past the business community first" and gauges their reaction before submitting it to Parliament. The business community is always informed and always sees what the government is trying to achieve and can contribute to that effort beforehand, he said.

photo of Nkosana Moyo and Elliott Harris
Nkosana Moyo and Elliott Harris

"After the fact, because they've been involved from the very beginning, they're much more likely to observe the law and support it to help enforce it." The result is high efficiency in the legislative capacity, particularly in economic areas, he said. Mauritius has what he called "a partnership" between business and government.

Business communities can contribute even more directly and fund the creation of public institutions, added Ndidi Okonkwo Nwuneli (HBS MBA '99). A director of the Fate Foundation Nigeria and Fate Foundation U.S.A., two nonprofits that try to promote entrepreneurship in Nigeria, Nwuneli said, "A company can, instead of paying taxes, adopt a school and directly contribute money to the educational system. The business community can actually serve as a force to oppose or support anything the government does."

Nigeria is trying to get the business community involved in a national economic summit to look at the budget and react to changes, she said. The downside to such direct involvement, however, is that whenever the business sector disagrees with government they keep quiet, she said. "They all want government contracts."

When business and government don't mix

Businesspeople can contribute a "tremendous" amount of insight and understanding toward the creation of jobs and attracting investment, said Bruce Bolnick, a fellow in Development at the John F. Kennedy School of Government. However, he did not agree that business should have a free hand in directly influencing grand economic decisions in African countries. The concept of a business-government partnership works best at a very narrow technical level, observed Bolnick. People who are specialists in particular tax issues, for instance, should work with government on resolving those same tax issues. Others with expertise in rural financing should work with government to draw up programs on rural financing.

photo of Debora Spar and Bruce Bolnick
Debora Spar and Bruce Bolnick

Where business has the ability to contribute funding—for training, for example—its funding should be welcomed and encouraged but only within narrow spheres, Bolnick added.

"Why wait for the government to start training accountants? Create an association. These [African] governments have so few resources. If you wait for the government to do it and advocate that the government does it, it's going to take a long time. The private sector can step in and fill some of these gaps. If a business is going into a country, why not endow a professorship? Why not endow a scholarship? Why not endow a laboratory?" Bolnick said.

In the long run, he said, this kind of assistance is more valuable than doing nothing and, in the medium term, business will benefit from an enlarged pool of skilled people.

Business can help with communications and transportation systems as well as the creation of a free press, said Marina Ottaway, a senior associate at the Carnegie Endowment for International Peace.

"I think we have to be very careful about creating too much of a role for business in the making of economic policy. Which business, which sector, whose interests are going to be protected?" she asked rhetorically. The only ones who participate in major discussions with governments are large businesses, she said, "not the informal sector. You risk having policies that are very clearly skewed to protect certain groups."

Out of bounds

As for the idea of funding institutions that seem benign at first glance—education, for example—business can exceed its bounds, Ottaway said. When a company adopts a school it can also destroy the educational responsibility of a country. "In other words, is it better for the company to pay taxes and for the government to develop its own capacity?" she asked the group. "Old companies in Nigeria ran the schools and clinics in certain areas for better or for worse, and they have been very much criticized—not so much by the people who had the services, but in the sense that they have destroyed the government presence in these areas. So it allowed the government to pack up and go home and say, 'We don't have to worry about it.'"

An effective business-government partnership is one where the government doesn't listen to everything the business community says, added Bolnick. Many businesses enter individual countries "and just try to pad their pockets and use the government to create protection subsidies, reduce taxes and all that,"he complained. While there are some very good, capable people in the business community who have a better sense of how to build progress than civil servants and ministries, the government has to have the strength to say no when necessary. For that relationship to work, people on the government side need to be "capable and honest," he concluded.

The proper role of business vis-à-vis a developing country is incredibly complicated, said moderator Spar as she summed up the panelists' remarks. "On the one hand, you want to be able to capture the resources of the private sector and let the private sector inform the government about what they need." On the other hand, as westerners are seeing with Enron in the United States, "it's very easy for that [relationship] to get corrupted," said Spar. "Getting that balance right is critical."

Photos by Martha Lagace.