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How government can achieve its ‘entrepreneurial state’ vision

Provide two key elements – flexibility and stability. And leave the risk-taking to others.

Since the idea of replicating Silicon Valley in SA isn’t a practical option for our politicians, as I illustrated last week in Building an ‘entrepreneurial state’, they might be wondering what they can they put their weight behind. We must hope they are.

In pursuing an entrepreneurial state, leaders will have to move beyond the rhetoric and fix the bottlenecks caused by bureaucratic red tape that are choking entrepreneurship and small business.

The state will have to face the fact almost 60% of small businesses collapse within the first five years. For those providing products or services to the state, their failure is often due to late payment from the state.

Neighbouring states are more entrepreneurial

According to the 2016/17 Global Entrepreneurship Monitor (GEM) survey, South Africa has “persistently low levels of entrepreneurial activity relative to other countries” and “entrepreneurial intentions in SA are significantly lower than for the African region as a whole – the regional average is four times higher than for SA – while the average for the efficiency-driven economies is more than double SA’s score.”

Based on politicians’ speeches about policy, can SA claim to be rational in its utterances of a developmental state, emerging economy and now entrepreneurial state? Can the country really claim to be an emerging economy given its underwhelming performance of the past 13 years? If the policy or programme theme is one that is shifting towards an entrepreneurial state, as recently said by President Cyril Ramaphosa, how is this going to be achieved? What about the National Development Plan (NDP) and the New Growth Path (NGP) – have they been abandoned?

These are vitally important questions that must be answered by those leading policy development and the direction of the state. The answers will either help fix the glitch or, with the passage of time lead, to economic collapse.

Crucial components

Some would argue that SA lacks the crucial components often used in relation to a developmental state. These include the ability of the state to be a conduit in purposely directing resources to the areas of the economy where they are needed most, while at the same time being able to use open markets and price mechanisms to remain competitive and enforce discipline.

On the face of it, this reads like something SA is already doing or should be doing because it seems easy. However, political rhetoric about an entrepreneurial state must be cognisant of the aforementioned traits of a developmental state. Our politicians should also take note of how the states of other Brics (Brazil, Russia, India, China and South Africa) emerging economies have developed – while being aware that what has worked elsewhere will not necessarily work in South Africa.

For leaders, and especially for a president, to ‘gooi’ phrases such as an ‘entrepreneurial state’ about makes me jittery.

Goals, objectives, plans – and focus

It also leads me to wonder – if the state was a person, and considering its current behaviour, could it be considered rational as it jumps from one catchphrase to another? Rational individuals have goals and objectives they seek to achieve or obtain. They will use available resources, means and time in ways they think will best enable them to attain those goals or objectives.

The same can be said about a state that is pursuing its goals. South Africa, in running with the pack of the big economies of the Brics nations, has positioned or portrayed itself as a powerful emerging economy. However, the reality check of a 3.2% drop in GDP in the first quarter of 2019 and unemployment at 27.6% forces the state to reckon with its aspirations versus reality.

Seeing that the country is a Brics member, perhaps it is prudent to consider the examples of China and India, notably with regard to the role of the state in their respective progression and development trajectories. 

China’s success and economic progress may be driven by the state, but India’s was not.

China, for example, has undertaken major infrastructure development; driving many state-owned companies to kick off development and attract investment. In other words, the state did the heavy lifting, including supporting business ventures it deemed capable of advancing growth and job creation. Of course, we cannot ignore that other factor; trade being the driver of China’s economic growth, as evidenced by increases in both exports and imports.

India’s rapid growth, however, had little to do with infrastructure, state-driven programmes or government-supported state-owned enterprises. Between 2003 and 2005, India experienced growth of 7-8% a year, despite no reforms by the state or significant public investment. It was during this period that India’s entrepreneurs and businesses flourished, expanded, acquired assets from all over the world and invested more; invested back into India.

The subtle approach

Yet closer interrogation reveals that India’s subtle function has been effective in ensuring economic growth and a thriving entrepreneurial sector, even without large-scale state investment. This was only possible because successive Indian governments have ensured stability and flexibility. The former in managing its micro-economic environment by carefully managing inflation-related aspects as well as its broader monetary framework. In stabilising them, investment flowed.

Aware of the impact of globalisation and economic interdependency, India recognised the need for flexibility by lowering trade barriers and eliminating the regulations that hindered business development, investment and the establishment of new businesses.

The point is that although undertaken differently, both China and India provided two crucial elements – flexibility and stability.

This enabled economic growth, facilitated a thriving entrepreneurial culture, and resulted in the progress that we have witnessed in the past 15 years.

In aiding and abetting a period that lifted their economies and their people, the respective roles of the Chinese and Indian governments played out differently based on conditions known to them. Each chose an approach and pursued it until the goal was achieved.

There is a lesson here. The hit-and-miss, clutching at straws, all-over-the-place approach of South Africa will not do.

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Neighboring states do not have BEE.

Besides India with their apartheid caste system, South Africa must be the only country who enforce and legalise racial discrimination against a minority?

“Rational individuals have goals and objectives they seek to achieve or obtain. ”

The author is judging the SA state (read: ANC) on his (and MW readers’) terms. This is incorrect. If the SA state is judged assuming its goals and objectives are the enrichment of the few and racial revenge, it all makes sense and is quite “rational”.

I say learn how to fix a pot-hole first and restore essentials like law & order via proper policing and decent public education and then MAYBE Government can dream of an entrepreneurial state. When you cannot even stick to basics the dreams are just that, dreams.

Failure is the basis of entrepreneurship. Entrepreneurs learn through trial and error. Some of the best and most successful entrepreneurs also made many small errors. We can describe entrepreneurship as a continuous process of correcting mistakes. It is like the story of Koos Stadler, the small-teams Recce Operator during the border war. If he had to describe his job, he said that it is his job to run away. He spent a lot of time running away, to avoid being detected and captured by the enemy.

85% of new business ideas fail in the first 5 years. 85% of new businesses go bankrupt. The point is this – if the government involves itself in entrepreneurship, the odds will be the same. The business plans of a politician cannot be better than that of any entrepreneur. Therefore, when the state ventures into the entrepreneurial space, they will back their failures with the capital of taxpayers.

The idea of an entrepreneurial state is the most certain recipe for disaster. This is the short route to hyperinflation and famine.

Government does not understand business to the least, most of Zimzuela countries go bankrupt within 20 years when they start to control the economy. Disaster awaits when a government rules the economy of a country and not the private sector. Furthermore, the first to leave is business (or money) when government start to control the economy. Typically what is happening in SA now, confusing policies and threats to take away ownership from business.

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