Successful collaboration between the state and the private sector needs close consultation, coordination and reciprocity. The private sector depends on bureaucrats and politicians for the successful design and implementation of policies, and the government depends on the private sector to ensure that private firms make the profitable investments that are necessary for growth and for policies to be sustained (Sen 2013b). Close consultation and coordination can help increase levels of trust, lower the costs for the state of monitoring private sector performance, and reassure the private sector that their interests and concerns are being addressed (Doner and Schneider 2000).
Reciprocity is an important element of effective state-business relations – if the state offers subsidies to the private sector, government officials need to know that the private sector will ensure that these subsidies are used productively (Harriss 2006). If subsidies are contingent on performance, the state should have the capability and commitment to discipline the private sector if it does not meet its targets, and the private sector should be aware that the government will behave in this way.
The Joint Economic Council in Mauritius
The collaborative relationship between the state and the private sector has been seen as one of the key factors behind Mauritius’ development success (Bräutigam and Diolle 2009). An important element of this relationship was the institutionalisation of the Joint Economic Council in 1970, which provided a forum for repeated – often public and high level – opportunities for meaningful consultation between the state and private sector.
The meetings in the Joint Economic Council allowed the private sector to express concerns about the government’s overall economic policies. The Joint Economic Council was important in normalising expectations that the government-business relationship should be institutionalised, rather than a personal relationship between political leaders and heads of business, thereby minimising the risk of collusive and predatory engagement (Handley 2008).
Government failure, market failure and coordination failure
Government failure occurs when excess government intervention in the economy leads to inefficiencies, which in turn lead to poor economic performance, or when there is an under-supply of critical public goods such as schooling, infrastructure and finance, and also under-provision of appropriate regulatory frameworks needed for private sector development, growth and structural transformation.
Market failure occurs when the markets inefficiently allocate goods and services.
Coordination failure occurs when certain desirable economic activities fail to take place due to lack of coordination among private sector associations, firms and the agencies of the state.
Effective state-business relations can help prevent government failure by providing checks and balances on government policies, tax and expenditure plans. Regular sharing of information between states and businesses ensures that private sector objectives are met with public action and that the concerns of the private sector on distortionary effects of poor quality government intervention are taking into account when setting government policies (te Velde 2009). Good state-business relations also help ensure that the provision of public goods is appropriate and high quality.
Effective state-business relations can help prevent market failure by the joint action of the state and the private sector to raise collective efficiency in areas such as skill development of workers, technology policy, and upgrading quality of exports.
Effective state-business relations can help prevent coordination failure by providing an institutionalised mechanism to coordinate dispersed information between business associations and government departments, and by reducing policy uncertainty for the private sector.
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