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EDITORIAL: Economist gives food for thought


EDITORIAL: Economist gives food for thought

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A RECENT CALL by Dr Terrence Farrell, former deputy governor of the Trinidad and Tobago Central Bank for a new kind of relationship between the private sector and the public sector is both challenging and interesting.

The respected economist says that there needs to be mutual respect between the business elite and the political directorate. This, he says, is not always there; and he is calling for joint formulation of economic policy beyond matters of industrial relations and taxation.

This is a serious issue because he is asking the private sector to be allowed to take part in the actual formulation of policy, for that is what we understand him to mean by collaboration in policy formation.

There is no doubt that there is a symbiotic relationship between the government of the day and the private sector. The private sector’s critical and important role is in the creation of jobs and the production of goods and services from which the national economy is able to benefit by extracting taxes from profits made and securing jobs for its many citizens.

Hence government should prepare an economic wicket on which the private sector can play its role. Clearly the perspectives of the private sector must matter; but Dr Farrell believes that we must go further, and he uses the example of what looks like privatisation to make the point.

Dr Farrell is calling for a paradigm shift in some aspects of national economic policymaking because he speaks of government starting certain industries where the severe risk on start-up may not attract private investment but where that industry may have benefits for the country. He believes that “privatisation” after the industry has been de-risked by government should be undertaken; with the company sold to private sector interests!

There may be some merit in examining this idea carefully since the public interest and common welfare may benefit from opening up certain areas of business that will not attract private capital initially and may otherwise remain undeveloped.

But if public funding is to be used to get over the risky teething problems of the  enterprise which is then sold to the private sector free of developmental problems, we may have to consider different regimes of taxation for such companies, as the buyers would be buying a successful business without having faced the heavy costs of start-up.

Dr Farrell’s speech is thought-provoking because it posits government policy of entering risky areas of enterprise and then selling them off to private capital; and as he says himself, privatization should not be contingent on the state of the economy.

Rather he says it should be an accepted exit strategy for state investments which would foster the expansion of the private sector and provide the government with the resources to pursue and develop other areas of activity that support entrepreneurship and innovation.

However desirable such an idea may be, it will require mature approaches by the policy makers and the citizenry. Allegations of unholy alliances between politicians and the private sector are already ripe fodder for persuasive vote catching and one can easily find recent examples of damaging political fallout from mention of privatisation.

But in a region short on venture capital and ripe for development, Dr Farrell’s ideas that the State must have a more involved role cannot be discarded.