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Opinions of Thursday, 15 December 2016

Columnist: Prof. J. Atsu Amegashie

No free lunch: Serious governments need serious citizens

President-elect, Nana Akufo-Addo President-elect, Nana Akufo-Addo

By Prof. J. Atsu Amegashie

It is a trite knowledge that economic prosperity requires, among others, hard work, honesty (a form social capital), and sacrifice. This does not only require a strong work ethic but also the investment in human capital, delayed gratification, and setting the right priorities (e.g., investing in the living, not the dead).

For more than 25 years, China saved more than a third of its national income every year. This saving was accompanied by prodigious rates of domestic investment. Please note the emphasis on domestic savings. Foreign aid helps but self-reliance is very important. As Ga folks say "agboo, ayeee" ("no contribution, no chop").

Nana Akufu-Addo's election as president of Ghana has raised the hopes of many Ghanaians. For example, his "one district, one factory" campaign promise is expected to create jobs for many unemployed Ghanaians. But economic prosperity will not come without sacrifice. For example, free SHS must be financed through taxes. Without a sustained increase in the production of goods and services and investment in efficient tax administration, tax revenue will be insufficient for free SHS. There are no freebies.

In 2014, I estimated, on the basis of the 2010 population census that the number of Ghanaians in the 18-60 year cohort was about 12 million. This was the size of Ghana's labor force in 2014, the actual number of people available for work. According to data by the government, IMF, and World Bank about 650,000 workers are in the public sector. This is only about 5.41% of the labor force.

The 650,000 workers in the public sector include "ghost names", which means that the true figure is smaller (i.e., the proportion of the labor force in the public sector is less than 5.41%). The employment of 5.41% of the labor force in the public sector does not mean that 94.59% of the labor force is employed in the private sector. It means that 94.59% of the labor force is not in the public sector (i.e., they are either unemployed or working in the private sector).

Even if the government were to double the number of workers in the public sector, there will still be about 10.8 million (of Ghana's approximately 12 million labor force) who do not work in the public sector.

According to the International Labor Organization (ILO), total employment in the public sector as a proportion of the labor force (the actual number of people available for work) in some OECD countries in 2008 was as follows: Japan (6.7%); South Korea (5.7%); Germany (9.6%); USA (14.6%); Canada (15.9%); UK (17.4%). The top four were the Nordic countries (Norway, Denmark, Sweden, and Finland) with the highest being Norway at 29.3% and lowest being Finland at 22.9%. The corresponding figures for the year 2000 were not different.

The figures for non-OECD countries like Brazil and Russia were 8.6% and 20.2% respectively. So no matter how you look at it, the public sector cannot absorb more than 70% of the labor force (even in welfare states like Norway, Sweden, Finland, Denmark). The Nordic countries are the exceptions, not the norm.

The private sector is the ultimate engine of job creation. The government cannot directly create many jobs. It can only incentivize private profit-maximizing businesses to move to your district. This is not meant to absolve the government of responsibility. After all, it is now a cliché in development circles to say that the government must create an enabling environment for the private sector.

In this respect, the government must reduce the private sector's cost of doing business. In February 2014, the president of Association of Ghana Industries (AGI), James Asare-Adjei, is reported to have said that: "You have situations where your goods arrive at the port and then it takes you over 21 days to clear these goods, whereas in some jurisdictions it takes you two hours. Are we being competitive?"

According to the 2013 World Bank Index of doing business, in Denmark, it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees to open a business. In Ghana, getting electricity requires 4 procedures, takes 79 days and costs 2295.3% of income per capita. Registering a property requires 5 procedures, takes 34.0 days; Dealing with construction permits requires 15 procedures, takes 246.5 days and costs 259.6% of income per capita.

In February 2013, Dr. Joe Oteng-Adjei, Minister for Environment, Science, Technology and Innovation, bemoaned the fact that Ghana loses between 20 and 50 per cent of all vegetables, fruits, cereals, roots and tubers produced each year. And in September 2016, Dr. Bruno Tran of the Africa Post-Harvest Losses Information System (APHLIS) disclosed that Ghana loses about 318,514 tonnes of maize annually to post-harvest losses, representing 18% annual maize production.

According to Dr Tran, most of the maize was lost because farmers failed to dry them thoroughly before storage which caused insects to attack the maize. Inefficient societies are poor societies. My people perish for lack of knowledge. They also perish for lack of seriousness and innovation.

Corruption by leaders of a country reduces economic prosperity or the production of surplus. Citizens who are dishonest, like to cut corners, and take advantage of people also have a negative effect on economic prosperity.

If your boss in the private sector (or public sector) has to spend more resources to closely monitor you and co-workers because you are not trust-worthy or will not do the right thing unless you are very closely monitored, the excessive investment in monitoring has a negative effect on the production of goods and services.

Growth of the business is stunted or is slower relative to growth in a society with more honest and reliable individuals. A burgeoning literature shows that social capital (e.g., trust, honesty, willingness to co-operate with others, etc) has a positive effect on growth. A factory in your district may fail because of your boss' mismanagement. But it may also fail because of your dishonesty. The enemy (kpakpakpa) is us.

Nana Akufo-Addo and Mahamudu Bawumia seem to be serious about turning the economy around. They are expected to deliver on some of their core campaign promises. Ghanaians should hold them accountable. But they also need serious citizens. A vote for change is not a vote for a free lunch. The hard work begins now.

Prof Atsu Amegashie is a Professor of Economics at Department of Economics and Finance, University of Guelph, Canada