Monday, February 26, 2024

When labour, gov’t spending chokes economic freedom

James Roberts of the Heritage Foundation is not a fan of organized labour. He holds that unions are an impediment to economic freedom.

When Roberts delivered a sermon on economic freedom at the Southern African Trade Hub last week, he sang from the same hymn book as the International Monetary Fund (IMF). Roberts prodded Botswana to cut both her social and infrastructure spending. The IMF has urged Botswana to trim spending which includes reducing the size of the public service ÔÇô something which has not amused the country’s unions. Nevertheless, it would be an issue that minister of Finance Kenneth Matambo would have something to say about.

Roberts, a research fellow in the Centre for International Trade and Economics was in Gaborone recently to announce Botswana’s standing on the 2011 Index of Economic Freedom which, at 68.8 percent, indicates the economy is moderately free.

Botswana is ranked┬ánumber 40 in the world Index of Economic Freedom ÔÇô top in Africa and 34 places┬áahead of neighbouring regional power house, South Africa. Hong Kong tops the world ranking at 89.7 point score. Roberts attributes Botswana’s not-so-high score to the global economic situation and increased spending by government. Total government expenditure soared to 40.2 percent of gross domestic product which the both the IMF and the Heritage Foundation say┬áwas due to years of fiscal surpluses built on diamond revenues which┬áallowed for spending on a growing public-sector wage bill, social programmes and infrastructure.┬á

I had the opportunity to sit down with Roberts. When I put it to him that governments have an obligation to meet the social and infrastructural requirements of their people, he proffered that it must be the role of the private sector.

“Social requirements of citizens must be met by the private sector not the government. When the government provides for citizens, it takes away people’s mentality that they can help themselves. In the United States, 80 percent of jobs are created by small businesses,” Roberts says.

He says at the Heritage Foundation they are in favour of a free market, not the one dominated by big business. “People [big business] make bad choices and governments come to their rescue through bailouts. This is not sustainable. What is not sustainable cannot be sustained. Markets need to punish failure,” he says.

How do you cut social spending and public sector jobs without meeting resistance from organized labour in the context of Botswana and the rest of Africa? I ask him.

“The index is a philosophy of long term outcomes. It showcases possible outcomes. A country has to adopt a goal and use ideas, innovation and entrepreneurship to free its economy. In the United States, we understand the historical developments that led to the formation of trade unions. The reasons why the trade unions existed have been achieved. Their work is finished.┬á They must disband. They start giving political contributions. Public sector unions work to the disadvantage of the citizen,” he argues.

Roberts says the philosophy of the economic index can be seen in a drop in the percentage of union members in the US.

While the index, and Roberts himself, admit that high levels of persistent corruption in many of the less developed countries continue to severely undermine economic growth, the right to access to information does not form one of the measures that the Heritage Foundation uses to evaluate openness.

The index says corruption is perceived as present in Botswana (37th out of 179 countries) and only uses Transparency International’s Corruption Perceptions Index for 2009. It is on that score of perception rather than measured corruption that, Robert does not disagree that the need for access to information is imperative.

“Access to information is critical. It puts government officials to be more transparent. You can see how wireless telephony has empowered people in accessing information,” says Roberts.

Roberts says Botswana has room to improve on her economic freedom score. He applauds the country for having survived the ‘resource curse’ during the global economic climate that led to a slump in diamond sales. “Resource nationalization would have been negative on the country’s score. It is important to keep the score high as it increases investor confidence,” says Roberts.

The resource curse is defined as a paradoxical situation in which countries with an abundance of non-renewable resources experience stagnant growth or even economic contraction. It occurs as a country begins to focus all of its energies on a single industry such as mining and neglects other sectors.

Roberts warns that the looming double dip, which is fueled by the Eurozone crisis, is going to cause commodity prices to fall and Botswana’s diamond industry will not be spared the ripple effects.

The Heritage foundation employs ten indicators to arrive at a country’s average world index of economic freedom in business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom.

Botswana’s world rankings ┬á┬á┬á┬á┬á┬á┬á┬á┬á┬á
Business Freedom                No.69                       
Trade Freedom                   No.97
Fiscal Freedom                  No.87
Government Spending          No.127
Monetary Freedom              No.134
Investment Freedom            No.26
Financial Freedom               No.17
Property Rights                 No.26
Freedom from corruption      No.36
Labour Freedom                  No.60
[Source: 2011 Index of Economic Freedom]


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