It is no business of the government to run businesses. They are not good at it

Dr Eamonn Butler is the Co-Founder and Director of Adam Smith Institute, UK, one of the leading global policy think-tanks. He has degrees in economics, philosophy and psychology, gaining a PhD from the University of St Andrews in 1978. Dr Butler has authored several books on pioneering economists Milton Friedman, FA Hayek, Ludwig Von Mises and Adam Smith. Similarly, he has co-authored ‘Forty Centuries of Wage and Price Controls’ and books on intelligence testing. He also regularly contributes articles to print and broadcast media in the UK. He was recently in Kathmandu to attend a special economic policy session termed ‘Econity’ organised by Samriddhi, The Prosperity Foundation. In an interview with Gaurav Aryal and Sanjeev Sharma of Business 360°, Dr Butler shared various dimensions of policy reforms.

How do you see the role of private sector in economic policy reforms?

Reforming the economy is a big challenge here in Nepal. There are social issues which politicians may deal with. But in economics, the private sector can at least tell what will work and what will not. The trouble at the moments seems that business people are too close to politicians and corruption in policy making. Adam Smith said 300 years ago that business people go to politicians to try to get laws changed in their favour. We need laws that are for the good of all entrepreneurs either running small shops, a small enterprise or large firms. The role of the private sector is essential but you need to be aware of how the situation is corrupted by that unholy alliance between businessmen, politicians and bureaucrats.

You said that policy can be distorted to serve a handful of businessmen. How can this be prevented?

It is important to get entrepreneurs and private sector people together to establish a network as a think tank. They can tell politicians and bureaucrats exactly what the problems are. You can grow that network and do an opinion poll of entrepreneurs and have a representative sample. Then you can take that to the bureaucrats and politicians and say, look half of our entrepreneurs say that they are being held back by a particular regulation or a law and you need to change it. The real evidence that you are giving to bureaucrats who often do not have any experience on business and do not know how their regulations and laws are impacting business helps a lot.

Often it is the private sector that is alleged for being corrupt especially for its involvement in unhealthy practices such as syndicates and cartels. How can this be discouraged?

Cartels and monopolies are more likely to emerge if they have government backing them in some way. If you look closely, you will see government regulation or law helping maintain the monopoly. Similarly, if you don’t have a proper free economy, people will get together to form a cartel and even get the government to help them, which is worse. A properly competitive environment has to be ensured so that cartels don’t really happen and you can’t keep the price high if someone can easily enter the market. We have found that the more a market is deregulated, the less are the problems from business cartels.

You have authored and co-authored books on economic policy reforms. What are your key findings?

In the UK, people are calling for a level playing field. They say that the government runs a number of services which discriminate against the private sector. Their argument is how can the private sector compete when the government is providing the same services for free, although taxpayers are paying for them. They also demand a good justice system and rule of law. They seek laws and regulations to be certain in the future. When you are looking at 10-20 years ahead in terms of investment, you have got to know what the legal situation should be. In UK, people are also demanding free movement of capital and people. If you can’t bring capital into the country without asking a bureaucrat, if you can’t export capital when you need to, and if you can’t get people from abroad because of visa restrictions, or you cannot travel abroad... these cause difficulties.

What was the experience of UK towards privatisation? And how did the country resolve the issues that came along with it?

My institute designed the intellectual blueprint for many of the privatisations that happened under Margaret Thatcher. When Thatcher took office, a third of the population lived in government owned house. The state controlled production of steel, ship building, mining, gas, water, electricity, telephones, transport, schools and hospitals. They all were state monopolies that we have privatised now. We decided very early and at every stage we knew that we want to get rid of these government industries. They were inefficient and grossly overmanned.For example, British Airways had 63,000 employees and it was reduced to 23,000 employees when we privatised it. We knew that we want to privatise, and our first priority was privatising by public floatation where everybody felt they were the part of this deal. We weren’t selling them and we weren’t giving them away to a company or some other businesses people did not feel connected with. However, we sold car making to Ford and Land Rover to Tata Steel. Each case was different. Sometimes we privatise them and kept a bit of monopoly while sometimes we broke up with where we could. Generally, that has been successful but nobody wants to go back to the old ways. There were problems because we were the first to do this. There were instances where we did not get it right. We are revisiting it and saying how we can do it again. We see the benefits of competition. It is a continuous process.

In Nepal, the government is still promoting the state owned enterprises. In the circumstances how can the private sector be made competitive?

It is no business of the government to run businesses. Business persons should run businesses, not politicians. They are not good at it. Politicians like to think big. They can’t think small. So, they tend to think you need a big industry and big players in this and that sector. That leads to concentration and monopoly. What you actually want is a lot of small enterprises producing slightly different things so people can choose the things they want. Then people will do more of that ... you make progress. If you got politicians in charge of industries, those industries never change. You need to get the government out of as many things as you can.

What could be the key issues for policy reform in Nepal?

One of the first things you should be doing is open up to foreign direct investment. Politicians and bureaucrats think too many laws open up the possibility to invest but actually it has the opposite effects. It makes the process too complicated. Demanding people to invest a certain minimum amount of money in a particular sector is crazy. In Britain, if you want to come and invest even 100 dollars, they take you by the hand and show you the way to the bank. Rule of law is very important. You don’t want bureaucrats making regulations one after another and not enforcing properly. Permissive approach is necessary to say to people that they can do anything they like as long as there is no law against it rather than saying theycan’t do anything unless the law is passed. Similarly, contracts must be enforced and respected. You also need to have peace with your neighbours. Actually, the more likely you are going to trade with them, the more likely it is that you are going to have peace. Without peace, nobody is going to invest. It is that platform of certainty where people can come and invest. Nepal’s constitution envisions a socialism oriented economic model. Your thoughts... Deng Xiaoping said that it does not matter whether a cat is black or white as long as it catches mice. Vietnam calls itself a communist republic but in the streets, you find people buying and selling things which is no different from any capitalistic economy. They sort of have a benign government which recognises the value of these activities. The most important thing is about doing the best you can to help the economy grow, help businesses and enterprises to grow and help customers, employees and community to prosper. Nepali politicians and bureaucrats might say that we are a socialist country and might allow socially responsible private enterprise to flourish. Otherwise, I think two things will happen, either there will be a conflict in 10 years when Nepal has not progressed and rest of the world especially China and India has progressed hugely. Then you find yourself in a very difficult position or you will simply stay where you are and the rest of the world will grow around you and you will become a museum of socialism.