Kiran Mathur Mohammed
The relentless, if not sole, purpose of any public spending must be the delivery of economic prosperity. With the treasury as hollow and empty as it is, we must be disciplined in demanding that any new project must deliver a reasonable rate of return for the economy.
This may sound bland and even trite. But the reality is that a great majority of state projects over the years have not delivered any type of economic return.
Part of the reason for that is that often we have focused solely on equity and redistribution, with mixed results. But time and again, the experience of countries the world over is that only growth has been able to lift the most vulnerable out of what Sam B Johnson called the “tentacles of circumstance.” We do not need to choose between growth and social justice.
How do we decide what projects are worth pulling out the wallet for? The most important thing is that their broadly sustainable economic benefits exceed the costs of funding them.
When the government borrows from the public or taxes us, it sucks money out of the private sector. That is money that might otherwise have been lent to people or businesses; or profits and income that might have been invested productively. Not to mention that taxes on additional income discourages people from putting in extra effort, putting a lid on growth (and ultimately on government revenue, too).
If the State is going to do that, it better have a good reason. It better be able to prove that it would use the money better than if it were left in the private sector.
Traditionally, many have assumed that public spending will stimulate the economy, regardless of where the money actually goes.
But a small, open economy like ours sprouts more leaks than your nearest WASA pipe. We import almost everything, so most money pumped into the economy goes right back out.
And the last few years of uncertainty has meant that those few who have some savings have been doing their level best to get it out of the country. The bang for the government buck grows smaller by the minute.
And woe betide any government that risks “overheating” the economy through excessive spending. That can cause prices to rise faster than production, effectively reducing the value of our dollar.
I won’t even bother mentioning the darker stories of bloat and corruption. We’re pretty tired of hearing about that. Given all that, why even bother to make the case for any government spending at all? In most countries, doesn’t the private sector create much more value than the public sector?
The truth in our country is more complicated. Yes, the private sector is often more dynamic. But private businesses and banks have also been forced to ingrain within themselves a deep aversion to risk that prevents them from making investments in growth or diversification.
You can’t blame most businesses or banks. That aversion is often justified, because we just don’t have enough information and data to make decisions about new markets or investments.
That is where is the government can step in. It can plug the investment gap, and become a catalyst for industry.
Decisions in the private sector must factor in lots of different complications. Luckily, the government has before it options for lots of relatively simple and straightforward projects, that don’t require that kind of agonising over risk.
It also has access to support from a swathe of international organisations, and to thousands of examples internationally. We are hardly the first country to try to fix its pipes or turn on the lights.
Funding this is possible. Lenders and bond investors will gain much more comfort if they are presented with the expected economic returns from new projects.
If reform of state enterprises and agencies is combined with great infrastructure projects, new money can be raised and pumped into the economy. This will create thousands of new, better jobs to replace those that must inevitably be lost in the painful process of reform.
So where do we start? Let’s start by saying that we don’t know. Then review as many different projects as is possible and narrow them to a short-list, grounded in analysis and data.
The best way to help the most vulnerable is not through transfers or grants destined for the pockets of the rich world, but through targeted spending that binds society.
Kiran Mathur Mohammed is a social entrepreneur, economist and businessman. He is a former banker, and a graduate of the University of Edinburgh.