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Monday, 22 September 2014

Growth and government size in Zambia

By Henry Kyambalesa

In this article, the term "economic growth" refers to an increase in a country's total output of goods and services over a given period. The term "economic development" refers to improvements in the standards of living of a country's citizens. These include sustained and pronounced improvements in per capita income, life expectancy, literacy levels, human capital, healthcare services, food security, public housing, transportation infrastructure, and leisure and recreation.

Effects of size on growth
The size of a country's government can have a significant effect on the level of its economic growth and, ultimately, the country's prospects for economic development. As Gwartney and others (1998), Barro (1997), Smith (2004), the World Bank (2000) and others have found, there is a correlation between an expansion in the size of a government (reflected by an increase in its expenditures) and a decline in private investment and economic growth.
In a study designed to examine the impact of an expansion in the size of a country's government on economic growth, Gwartney and others (1998) make the following observations:
1)  An excessively large national government can have a negative effect on economic growth. Grossman (1988:193-200), among other researchers, has found a similar correlation in his study of the U.S. government: "there [is] … indeed a negative relationship between growth in government and the rate of economic growth."
2)  As a government grows in size, it crowds out investment, leads to a decline in productivity growth and contributes to a slowdown in the growth rate of its real GDP. Similarly, Smith (2004) has found that "economies with large public sectors grow more slowly and suffer high rates of unemployment than those where this is not the case."
3)  An increase of 10 percentage points in government expenditure as a share of a country's GDP is associated with a decline of approximately 1 percentage point in the growth rate of real GDP. Barro (1997) has also found that a 1 percentage point rise in the share of government consumption in GDP is associated with a 0.14 percentage point retardation in the rate of growth of real GDP per head of population. Folster and Henrekson (2001: 1501-1520) have found a similar correlation.
4)  From 1980 to 1995, the world's 5 fastest-growing economies – that is, South KoreaThailandTaiwanSingapore, and Hong Kong – had total government expenditures averaging 20.1% of GDP, and was less than half the average of OECD countries. In addition, a study focused on the growth of public expenditure in industrial countries between 1870 and 1996, Tanzi & Schuknecht (2000:76) found that countries with relatively small governments can perform "as well or even better than their counterparts with relatively big governments."
In Middleton's (2000) words, a "smaller, better focused government is better able to deliver than is big government."
Peden and Bradley (1989:239), using U.S. data for the period 1949-85 to examine the effect of the size of government on economic output and productivity, have also concluded that the "level of government activity in the economy has a negative effect on both the economic base (GDP) and the economic growth rate (GDP) growth."

Application to Zambia
Zambia, like other developing countries worldwide, have continued to grapple with the problems of poverty, hunger, ignorance, illiteracy, disease, widespread unemployment, and dilapidated infrastructure. This is in spite of the country's abundant natural endowments, which include fertile soil, ideal weather conditions, an ideal system of perennial rivers, a wide range of wildlife, wide stretches of natural forests and grasslands, a wide assortment of mineral resources, and a sizable population of peaceful and hard-working citizens.
Since our beloved country's political independence in October 1964, we have miserably failed to use our national resources wisely in our quest to attain meaningful socioeconomic development and improve the livelihoods of the majority our people. Besides, we have continued to mortgage our country by borrowing heavily from both local and external sources of funds in order to sustain government operations.
Also, we have continued to rely on the support of our country's development partners in various fields and sectors of the country, including agriculture, decentralization, education, energy, gender, governance, health, housing, HIV/AIDS, macroeconomics, private sector development, social protection, science and technology, tourism, water, transportation infrastructure, and the environment.
But what are we going to do when such support gets disrupted by changes in the priorities of our development partners, or if the development partners withdraw their support when we decide to pursue policies which are contrary to their expectations?
One of the basic reasons why Zambia has not been able to adequately address its socioeconomic problems, as well as reduce its borrowing, is due to the country's bloated government structures.
Given the multitude of socioeconomic problems that cannot be addressed mainly due to the lack of financial and material resources, one would perhaps do well to suggest a streamlined government structure for the country. This could consist of the following government ministries and their specific functions:
1)  Education, Training and Sport —To be directly responsible for advi­sing the Presi­dent on, and spear­heading the implemen­tation of poli­cies relating to, the follow­ing: general and tertiary educa­tion; vocation­al trai­ning; the training of teach­ers; adult literacy programs; matters concerning re­muner­ation for teachers, lec­turers, trainers, and re­search­ers; and sporting programs in all educational and training institutions. And coordi­na­tion of natio­nal progra­m­s and acti­vities pertaining to educa­tion, training and sport with those of private institu­tions, as well as local govern­me­nts nationwide.
2)  Public Health and Sanitation —To be directly responsible for advising the President on, and spear­heading the implementa­tion of policies relating to, the follo­wing: medical care, medical research, child health and development, family planning, disease control and prevention, food safety (local and imported foodstuff), drug safety (local and imported medicines), safety of herbal medicines, public health education, public health inspections, and matters concerning remuneration for public health personnel. And coordination of national public health programs and activities with those of private healthcare facilities and local governments.
3)  Agriculture and Food Security—To be directly responsible for advising the Pre­sident on, and spear­heading the implementation of policies relating to, the following: sustainable agricultural devel­opment and long-term food security – including the provision of agricul­tural incen­tives, support to agri­business establishments and agricultural research centres, damming rivers, and construction of irrigation canals. And coordi­na­tion of national programs and activities pertain­ing to agri­culture and food security with those of the private sector and both provincial and muni­cipal govern­me­nts.
4)  Finance and Revenue —To be directly responsible for advising the President on, and spearheading the implemen­tation of policies relating to, the following: financial matters and monetary issues, including the stock / securities market; national debt management and external debt resolution; management of all state owned enterprises; administration, dispensation and recovery of loans granted to students and trainees admitted to institutions of higher learning, and management of a government scholar­ship fund through a "Loans and Schola­rships Committee" to be created in due course; and revenue generation through taxat­ion, customs and excise duties, service fees / charges, superintendence over the National Road Fund Agency (NRFA), and provision of postal services through the Zambia Postal Services Corporation (ZAMPOST).
5)  Commerce and Industry—To be directly responsible for advising the Presi­dent on, and spear­heading the implementation of policies relating to, the fol­lowing: trade and industrialisation strategy, mining, business and investment promotion, regulation of imports and expo­rts, trade relations, registra­tion of foreign companies, research and development (R&D) support for local manufacturers, development in rural areas, and superintendence over the operations of the Zambia Development Agency (ZDA). And coordination of national com­mercial and industrial programs and activities with those of local governments.
6)  Defence and Security —To be directly responsible for advising the President on, and spear­heading the implementation of policies relating to, the following: enhancement of national defence and security, including the issues of training, equipment, and matters concerning housing and remuneration for defence and security per­sonnel.­
7)  Home Affairs —To be directly responsible for advising the President on, and spearheading the implementation of policies relating to, the following: the protection of life and property; the preservation of law and order; the detection and prevention of crime; enforcement of laws and ordinances; safeguarding the rights and freedoms of members of society; developing sound police-community relations; and the operations of the Zambia National Service (ZNS). And coordination of the ministry's programs with other security organs of the national government, and those of local authorities and private security companies in dealing with public safety and security within the country.
8)  Works, Supply and Transport.—To be directly responsible for advising the Pre­sident on, and spear­heading the implementation of policies relating to, the follo­wing: utili­zation and management of nationally own­ed pieces of land; provision and maintenance of vital infrastructure nation­wide—including an efficient, intermodal and safe network of ground and air trans­portation; develop­ment of malleable stretches of the Zambezi, Kafue, Luan­gwa and other sizable pere­nnial rivers for water transportation – including the proposed Shire-Zambezi Waterway involving Zambia, Malawi and Mozambique; and construction, reno­vation and mainte­nance of gove­rnment faci­lities and pieces of property nationwide. And coordination of the provision and maintenance of national public facilities with the efforts of local govern­me­nts.
9)  Lands and Public Housing.—To be directly responsible for advi­sing the President on, and spear­heading the implemen­tation of policies relating to, the fol­lowing: delineation, administration and development of state and customary lands; management of the land resettlement program; issuance of title deeds; resolution of land-related disputes; provision of consent in the acquisition and transfer and leasing of lands; the implementation of home ownership schemes for all civil servants; provision of low-cost rental hous­ing units for low-income fami­lies; manage­ment of a home-ownership scheme for low income families to be financed through low interest mortgages; stipulation of fair eligibility requirements to be met by applicants for low-income rental public housing; generation of rules of occupancy, and determination of rental and other related charges; and derivation of a grievance procedure and guidelines for resolving any and all the issues and matters relating to non-compliance with rules of occupancy.
10)  Culture and Community Services.—To be directly responsible for advising the President on, and spearheading the implementation of policies relating to, the following: preservation of the country's national treasures, including national monuments, museums, historical sites, cherished traditional and cultural values; promotion of traditional music and culture related crafts; national emergencies (through a "National Emergency Management Unit"); national unity and patriotism; religious harmony; national ceremo­nies and festivals; and issues relating to women, children, disabled citizens, and retirees and the aged. And coordination of nat­ional cultural and community programs and activities with those of local governments.
11)  Justice, Prisons and Immigration —To be directly responsible for advising the President on, and spear heading the implementation of policies relating to, the following: legal matters (in­cluding representation of the govern­ment), prote­ction of citi­zens' rights and freedoms, administration of the Zambia Prison Service, legal aid, title deeds, national registration, pass­ports and immigration, citizen­ship and naturali­zation, work permits, treaties and agreements with other countries, intellectual property rights (patents, copyrights and trade­marks), and remuneration for judicial personnel and support staff.
12)  Foreign Affairs and Tourism —To be directly responsible for advising the President on, and spearheading the implementation of policies relating to, the following: foreign political relations, including conflict resolution and peace keeping efforts; consular affairs and services; profiles of foreign countries; services and vital information to Zambians in, or travelling to, foreign countries; publicizing Zambian society abroad; and management of a program which shall confer rare and special "Zambian Residency" status upon a selected number of distinguished foreigners.
A new or re-elected Republican president can implement such a streamlined government structure during or soon after his or her inauguration. I would expect Members of Parliament to eventually and unreservedly endorse such a government structure, irrespective of their political affiliations.
A streamlined government structure, such as that suggested above, is likely to yield huge savings in the form of salaries, special allowances, and utility allowances. Other savings would be in the form of the various kinds of payments currently being made by the government on behalf of government officials who would be retired, including payments for housing, phones, buildings, office supplies, automobiles, gasoline, water, and electricity.
All these savings could supplement the existing sources of government revenue, which include personal and business income taxes, value-added tax, postal revenues, national lottery, commercial undertakings, customs duties, passport fees, fire-arm registration fees, excise taxes, hunting licence fees, work permit fees, citizenship and naturalization fees, and NRC replacement fees.
The selling and/or buying of government bonds (by the Bank of Zambia) through the Lusaka Stock Exchange and regional stock markets on behalf of the government (by means of "open market operations") could also provide additional revenues for the central government.
Performance of the func­tions of the Executive branch of the national govern­ment should be complemented by the work of several semi-autono­mous gov­ern­ment agencies, as provided for in the 1996 Repu­bli­can cons­titution.
The complementary executive agencies which would need to be created, and those which are already pro­vided for by the current Republi­can constitution, should be as follows: (1) Zambia Revenue Authority; (2) Anti-Corruption Commission; (3) Electoral Commission of Zambia; (4) Electoral Complaints Authority of Zambia; (5) Human Rights Commission: (6) Labour Standards and Occupational Safety Board; (7) Environmental Council of Zambia; (8) Zambia Wildlife Authority; (9) National Water and Sanitation Council; (10) Energy Regulation Board; (11) Zambia Competition Commission; (12) Zambia Public Procurement Authority; (13) Drug Control Agency; (14) Food Reserve Agency; (15) Bureau of Statistics and Archives; (16) National Transport Safety Board; (17) Zambia Information and Communications Technology Authority; and (18) the National Science and Technology Council.
For reasons of cost, each of the semi-autonomous government agencies would need to be managed by a small group of technocrats, and should be expected to enhance the national government's ability to meet the changing needs and expec­tations of the people.
Civil servants who would be affected by the streamlining exercise should be encouraged to seek early retirement with full benefits. Professional and skilled civil servants should be re-deployed in the handful of new government ministries, and/or in executive agencies.
Each and every day that passes creates great opportunities for us to devise and relentlessly pursue viable strategies designed to make it possible for our beloved country to meet the basic needs, aspirations, and expectations of its people.
As the United Nations Economic and Social Commission for Asia and the Pacific (2001:90) has advised leaders in developing countries, we cannot wait for gradual progression of catching-up with the industrialized countries of the North; rather we must search for leap-flogging solutions to the problems facing our beloved country and its people.
In all, it is not possible for any political party or any political leader in Zambia – or in any other country as a matter of fact - to attain meaningful socioeconomic development with a bloated government that does not reserve a large portion of its resources for use in addressing the multitude of problems facing our beloved country and its people.

References
Barro, Robert J., Determinants of Economic Growth: A Cross Section Empirical Study, MIT Press, Cambridge, MA, USA.
Folster, Stefan and Henrekson, Magnus, "Growth Effects of Government Expenditure and Taxation in Rich Countries," European Economic Review 45 (2001): 1501-1520.
Grossman, Philip, "Government and Economic Growth: A Non-Linear Relationship," Public Choice 56 (1988): 193-200.
Gwartney, James et al, "The Size and Functions of Government and Economic Growth," http://www.house.gov/jec/ , April 1998.
Kyambalesa, Henry, "Government Size and Functions: The Political Economy of Small and Popular Governments in Africa," presented at the 27th Global Strategic Studies Conference held in Omaha, Nebraska, October 14-16, 2004 at the W. H. Thompson Alumni Centre at the University of Nebraska.
Middleton, Roger, "Book Reviews: Public Spending in the 20th Century: A Global Perspective" by Tanzi, Vito and Schuknecht, Ludger: http://www.eh.net/ , October 2000.
Peden, Edgar and Bradley, Michael, "Government Size, Productivity, and Economic Growth: The Post-War Experience," Public Choice 61 (1989): 229-45.
Smith, David, "The Effects of Public Spending and Taxes on Economic Growth," http://www.iea.org.uk/files/ , May 19, 2004.
Tanzi, Vito and Ludger Schuknecht, "Can Small Governments Secure Economic and Social Well-Being?" in Grubel, Herbert, editor, How to Use the Fiscal Surplus: What Is the Optimal Size of Government? (Vancouver, BC: The Frazer Institute, 1998).
______, Public Spending in the 20th Century: A Global Perspective (Cambridge, United Kingdom: Cambridge University Press, 2000).
______, "Countries with Big Governments Run Risk of Slower Growth," IMF Survey, February 19, 1996.

Author
Henry Kyambalesa, is a Zambian academic currently residing in the City and County of Denver, Colorado, in the United States of America.

2 comments:

  1. The continued discussion on different ways forward all reflect that the current situation is unacceptable. The discussion has being going on for a long time. I feel that big gov is not the answer but that somehow means should be directly diverted to the people to allow their own development. This is by no means easy to do as gov's are essentially extractive and populist. They collect rents for their own constituency.

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  2. Sometimes I read lucid, coherent commentary that is so sompelling in nature one wanders why those in power can't see the merit in it. This is one such opinion peice. I congratulate the author. A small government with big ambitions, big brains and even bigger inetegrity please.

    Fred

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