America’s mighty economic engine is undoubtedly the envy of the world. According to the IMF’s April 2019 World Economic Outlook, U.S. per capita GDP is $64,770. That translates into a $21.3 trillion national economy, based on the latest population data. In contrast, the size of China’s economy, the world’s second largest, is roughly $14.4 trillion. While that is an impressive number, China’s per capita GDP is only $10,150. The average American is thus a lot wealthier than his or her Chinese counterpart.
Because of the strength of the American economy, the free market principles on which it is based have often been proposed as a template for countries that are now trying to develop their economies. Many countries have taken that advice, but have struggled for decades to achieve any meaningful success. Those disappointments, coupled with China’s rapid economic growth that has lifted millions of its citizens out of poverty, have lately prompted some in the developing world to urge their governments to adopt China’s state-led capitalism model. That idea is growing quite popular, particularly in Africa.
The failure to properly acknowledge the crucial role that a strong public sector plays in any free enterprise system is perhaps the greatest error the rest of the world has made in trying to copy America’s economic model. The dominant private sector in America would not function as well as it does without the array of effective regulatory agencies that set the rules of the road and enforce them in ways that make fair competition possible.
There is a significant number of Americans who argue that the country’s economic playing field is not level. They complain frequently about banks that are too big to fail, and companies that have grown so large that they can easily kill off their competitors, hurting consumers in the process. Much has also been written about the revolving door through which some public officials go back and forth between the public and private sectors. Sometimes, those officials happen to be former regulators of the industries they go to work for, and there is a widespread feeling that the cozy relationships they develop with corporate bosses do corrupt the business and political environments in America.
There is indeed public corruption in America, for which people are often sent to jail. In spite of all that, the men and women who work in America’s public sector indisputably manage to get the job done on a daily basis to keep the national economic engine running.
As I have quietly observed American society over nearly three decades, I have been greatly impressed by the strength and quality of the country’s public sector. Unlike in many developing countries, one can pretty much get every business done in an American government agency, whether at the local, state, or federal level, without having to pay a bribe. And, in my experience, there is generally little difference in the quality of services provided by public and private entities in America.
When I visit the post office to mail something, go to a department of motor vehicle office to renew my driver’s license, or mail my passport to a processing center for renewal, the services are generally as hassle-free as one would expect in interactions with private businesses. For the most part, the police in America do an excellent job maintaining the secure environments that allow economic activity to flourish.
The same cannot be said of most countries in the developing world. There, endemic public-sector corruption serves as a brake on business activity. Because of that corruption and accompanying mismanagement of state resources, the state is unable to fulfill its leading role in building the basic infrastructure that an economy needs to function.
It is in recognition of this critical importance of an effective public sector that Singapore adopted an official policy to pay ultra-competitive salaries to attract the best and brightest to work in the country’s civil service. In 2012, even after a 36-percent reduction in his and his ministers’ salaries, the Singaporean prime minister was set to earn S$1.2 million per year (about $1.8 million annually at the time), making him the highest-paid political leader in the world. By comparison, the U.S. president earns $400,000 per annum. While the policy in Singapore has attracted some criticism, it has been maintained.
According to analysis by the Congressional Budget Office (CBO), in the period between 2011 and 2015, total compensation (wages and benefits) paid to America’s federal employees was competitive, relative to those received by their peers in the private sector. However, the CBO data portrayed a mixed picture. It showed that on average, federal workers with bachelor’s degrees or lower educational attainment earned 5 percent more than their private-sector counterparts, while for those with professional or doctorate degrees, earnings were 24 percent lower than in the private sector.
Regardless of where they fell on that spectrum, America’s public servants earned nowhere near the compensation received by equivalent workers in Singapore. Even then, there have been complaints in some circles about American federal employees earning too much. That led President Trump to order cancelation of pay raises for federal civilian employees in 2018.
Apparently, there are factors other than money that motivate America’s public servants to do their jobs well. Without carefully studying the cultural makeup of America’s public sector and trying to replicate it within their own societies, no amount of money and effort spent in developing countries is likely to yield the desired results, with respect to economic development.
I have had opportunities to observe the societies of other developed countries like Germany, the Netherlands, the U.K., and Canada. What the vast majority of advanced nations seem to have in common is the type of high-quality public sector that America enjoys.
Sports enthusiasts know that even the most competitive of sporting contests, with the best talent on show, can easily be ruined by bad refereeing. Since the public sector serves as the arbiter in any free enterprise system, impartial or incompetent public servants will equally wreck a national economy. In many developing countries, weak accountability systems allow public officials to award themselves wages, benefits, and various perks that, taken together, often rival what civil servants receive in Singapore. The real tragedy though is that despite those fat remuneration packages, most public officials in the developing world still do such a terrible job.
Privatization is often seen as the remedy for poorly performing state-owned enterprises. However, history shows that in one developing country after another, governments have made a complete mess of those efforts. That is precisely because bad referees have been in charge of the process. It is time for the IMF, the World Bank, and donor countries that promote denationalization in the developing world to properly factor this weak link into their thinking.
The current debate in Africa about what economic model would work best on the continent is an appropriate one to have. There must however be a recognition that when it comes to Chinese-style state-led capitalism, putting the current collection of bad referees there in charge would perhaps be courting disaster.