Government entrepreneurship.

The size of government is less important than the way it behaves.

The at times cavalier behaviour of the United States under Donald Trump’s “America first” refrain, raises a number of issues that can have a significant impact on the global economy.

The more obvious, and one that can affect South Africa’s foreign trade, is the global trade war he has unleashed. Barriers to foreign imports have already triggered the inevitable tit-for-tat response from America’s main trading partners, including China, Canada, and Europe. There are seldom outright winners and losers in this game. The initial gains you make in reducing imports are invariably set-off by a fall in exports, and you find yourself becoming more and more insular, until you lose your position and influence as a global trading nation.

It is counter-intuitive to a well-established principle, backed by years of World Bank research that the success of a nation depends on having an external focus and developing its people. You can apply those same principles to a company and even to an individual. It amounts simply to a desire to make a contribution to the world around you, and developing knowledge and skills to do so.

More significantly, is how this behaviour impacts on trust. Commerce has always been a proven counter to conflict, but the moment it is engineered for exclusive self-gain, it creates an imbalance and distrust. The U.S’s problem has been compounded significantly by its offhand approach to treaties, agreements and understandings; going back to its treatment of native Americans; the more recent scuttling of a highly valued Iran nuclear deal; reneging on climate change commitments; its propensity for covert involvement in regime change and many more. Sad to say, America is no longer as trusted a nation as it used to be. It remains to be seen whether the dramatic rapprochement with North Korea will improve or further damage that trust. But as things stand, there is a danger that ultimately trust will also be lost in its most powerful global instrument, the dollar.

This brings attention to the most significant aspect of all: the role governments play in our well-being: as individuals, as nations and as a global species. Governments are big, invasive and more in control of our destiny than any other single institution. As we saw with Greece and more recently with Italy, centralised authority can ride rough-shod over the democratically expressed will of the people. But it is the least trusted institution in most societies, below that of business, NGO’s and the media.

Yet they continue to grow. Not only in size as reflected in their claim on national resources, but in their regulation of citizen behaviour through legislation. They are there to stay, perhaps even becoming more dominant and invasive. With this, the classic ideological debate between capitalism and socialism is fuelled to hysteria and open conflict. The size of government is then used as an unsubstantiated premise to prove its role in national prosperity or poverty. In South Africa, President Ramaphosa has earned some kudos for promising to review the size and structure of the government. Few will take issue with that, especially in the light of the disastrous performance of state owned enterprises in recent decades and the high demands on dwindling revenue. There’s no question that we have a bloated, largely inefficient and wasteful bureaucracy.

But one must caution against a dogmatic approach based simply on size and metrics. Unbending ideology can often stand in the way of progress and muddy the path of economic evolvement. Many prosperous nations, such as Norway and Denmark, contradict the small government premise. Others, such as South Korea, post war Japanese recovery, and Taiwan have shown what can be achieved not only through strong collaboration with private initiative but having a firm government hand on the process.

British economist and author, Professor Mariana Mazzucato, of the University College London, has argued for a partnership of equals between public and private actors in the innovation economy. She writes: “The state has actively shaped and created markets, not just fixed them. It has done so by being an active investor along the whole innovation chain: not only in basic research but also even in downstream areas like applied research and early stage financing of companies”. South Africa’s Sasol is a good example of that.

Despite my own early fanatical aversion to state involvement in the economy and preference for private sector control of resources, a question that often irks me is what prevents the state or communities from having their own enterprises if they played to the same rules as those in the private sector? Of course that is a big “if”, but arguably those rules are as easily broken by big, centralised economic power-houses and corporates, as governments.

The answer lies, of course, in intent. The Holy Grail of purpose – that of serving its market or customers – that should apply to all business, must equally apply to government. The rules of reward distribution: meeting the legitimate expectations of the participating stakeholders and encouraging continued contribution should also be followed. In short, one should follow Common-purpose; Common Fate principles where government is involved. That would imply, for example, that civil service pay could be flexibly linked to nominal GDP growth once guidelines have been established for the appropriate size of the government wage bill in relation to GDP. Interestingly that would make the current 7% public sector wage offer close to that norm.

That “appropriate size” is at the core of the debate. In a social media post, Economist Mike Schussler argues that at 13.79%, the S.A. government wage bill is “very, very high” compared to the average of 6.3% for low income countries, 7% for middle income and 9.7% for rich countries. The legitimacy of using averages as benchmarks is open to question – just ask any individual shopper whether they believe the official inflation rate! But even in the Schussler table, South Africa is still below countries such as Denmark, Norway and Finland.

Big government is here to stay. But as Muzzucato argues, it has to start thinking entrepreneurially. Size matters far less than the way it behaves.

From Ashe to Ashwin.

Confronting the thorny issue of merit based appointments in society.

It may be connecting some very obscure dots, but former Springbok rugby player, Ashwin Willemse’s walking off the SuperSport set reminded me of tennis champion Arthur Ashe’s rebellious tour of South Africa some 45 years ago. The two events may be on a completely different scale. Ashe’s defiance of the global sport isolation of South Africa was a highly significant activist gesture against existing racial prejudice, while Willemse’s walk-out was less clear – at least at the time of writing. It seems to have had at least some measure of self-indulgent personality cultivation where one-upmanship is typical of many of these panels.

That the Willemse incident became a loud gnashing of teeth about sport transformation, racism and quotas, reflects a rather puzzling paradox – how little and how much we have moved on from the days of Arthur Ashe. At the centre of it all is that much vaunted, but highly mythical and misunderstood concept of merit.

Just as strange is the attention it receives in an arena where it is the least arbitrary: in sport. At the highest level in this field, merit is simply not an issue – you are either competitive or you fall out and Willemse is clearly one of the former.  If you don’t select the best by individual track record, you must be prepared to pay the price at the highest level; which in turn destroys aspirations to reach that level – at least for your own country. It’s clearly the surest road to mediocrity, and can only be addressed at grass roots where equal development opportunities supersede merit.

But the strangest perversion of all is the obsession with merit in sport, and the near absence of it in many far more important areas of society. I know this may resonate with some political rhetoric out there, but that too is based on a good measure of hypocrisy and no full understanding of the invidious, subtle and sometimes deliberate ways that merit criteria can be warped. They can as easily be used to entrench assumptions and prejudices as they can to ensure the best recruit. A self-evident sacrosanct principle of merit based appointments is that all the criteria have to be relevant to the task itself and the value that the task adds to society. Any other criteria not only detract from and dilute the merit principle, but place self-gain above the needs of society or customers.

But one can only invoke the merit argument when you have done everything possible to develop the broadest number of individuals to meet the standards required. Otherwise it will be unfair and seen to be unfair.

This gives some validity to affirmative action, which can be seen as a socially prescribed merit criterion but has arguably failed because it has focused virtually exclusively on demographic metrics, rather than the development of value creators. Mentoring and development demand much self-sacrifice by the mentors, mostly in first line and middle management. In my management consulting days, I regularly witnessed how intransigent and resentful these managers were of the task. Not only are we reaping the fruits of that behaviour today, but it has weakened the argument for merit based appointments in many sectors, adding some unnecessary fuel to “legacy” arguments. It has also largely poisoned the potential benefits of affirmative action, which is contrary to pure merit deployment in the longer run.

Despite the enormous hurdles in applying merit criteria to all tasks in society, it is an aspirational imperative that should rank as high as any of the most important provisions in our constitution. Few can argue that its opposites: nepotism, cronyism and patronage have become deep-seated and systemic and have led to disastrous corruption. This has to be rolled back at all levels. The only way to do so is through a serious rethink of our approach to merit based appointments, perhaps even a review of affirmative action itself.

To be sure, the most serious rot has been in government, starting with local government and the strong link between political party branches and member deployment into local authority executive positions. Rivalry there has become so intense that contenders will literally kill each other to secure appointments. How far are we from having political assassinations at national level? Mature democratic societies counter this inevitable politically expedient scourge by making a clear and unyielding distinction between legislative and executive positions, where the latter is drawn from any source, race or gender purely on merit. Political standards too can be lifted by applying merit criteria in nominations for positions.

Nepotism spreads like a virus. When one huge sector, such as government, is infected to the bone, then others respond with their own bias. We have all been either victims or beneficiaries of some form of nepotism or cronyism, accepting it as “part of life”. Some are born into privilege; others into poverty. In turn, inequalities and inequities are entrenched and by their very nature create a sense of unfairness which is the nemesis of merit based deployment of human contribution.

The case for merit based appointments in all of the working environment is self-evident and overwhelming. Yet it has been sadly neglected as a national principle. Service driven merit criteria will:

·        Substantially counter corruption.

·        Vastly improve service delivery, product quality, standards and competitiveness.

·        Optimise value creation, job creation and prosperity.

·        Enhance individual aspirations and self-development.

·        Create greater fair play in appointments.

·        Reduce disparaging of appointees.

·        Reduce accusations of discrimination in terms of race, gender and other.

·        Give self-confidence to and respect for incumbents.

Perhaps technology can come to the rescue. It should be possible with today’s advanced algorithms to design highly sophisticated and comprehensive aptitude testing, including brain scan imaging to detect the psychopaths and emotionally unstable. This should eliminate most, if not all, of the human prejudices in appointments.

Of course, if you don’t want to subject yourself to this dehumanised process, you can always become self-employed and take your contribution directly to the market, where merit is judged more rigorously.