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Economic growth, prosperity needs defiance and innovative thinking.

The rise of China from a backwater agrarian economy to a superpower has enthralled and confounded nearly all economists.Beijing, it appears, sidestepped conventional wisdom on the role of the state in economic growth.

While the dominant school of thought favours Adam Smith's "invisible hand" in allocating resources and choosing profitable and competitive sectors, it steered the economy towards specific targets such as the creation of institutions considered the bedrock of a stable economy.It was only after desired institutions had acquired sufficient competencies that China began to slowly let go its grip on economic levers.

But it was actually following a well-trodden path that is familiar to many a developed economy.MAGICAL PERFORMANCEAfrican governments are wrong in hoping to recreate China's magical performance by solely prioritising infrastructure development.

Again, a country is unlikely to achieve Chinese-like performance by strictly implementing World Bank and IMF policy dictates. These Bretton Woods institutions promote capitalism and free market economy.

They regard subsidies as market distortions and perceive government interventions such as price controls and priority setting as the source for inefficiencies and resource misallocation.Besides oversight, we are told the only other role ascribed to the State in a market economy is the creation of suitable conditions for unimpeded private sector entrance and performance.

This explains the push for low taxes and fewer regulations, permits and fees.It has become anathema for state agencies to implement public projects, even when that could result in significant savings.

PRIVATE PARTNERSHIPSTo prevent market distortions, public services are contracted out to the private sector or provided under public-private partnerships giving rise to the "tenderpreneurs", a cabal of politically connected individuals with phony firms to siphon public funds.Instead of building domestic capacity, we rely on foreigners to implement routine projects.

Not only does this harm indigenous firms but it also drains our economy and leaves us weaker and vulnerable to external shocks.Even within restricted policy spaces, we can borrow and adapt successful models.

We can adopt China's Township and Village Enterprises (TVEs) model of the 1970s, for instance.For three decades, TVEs, whose managers were competitively recruited and remunerated, were crucial in China's industrial and economic transformation.

The rural-based enterprises, established and funded largely by local communities such as villages and municipalities, implemented small projects.Late 1970s government-initiated reforms elevated TVEs to prominent state instruments for addressing poverty, agricultural and modernisation and absorbing surplus rural labour.

Local governments granted them de facto monopoly status and protection against unfair business practices, including predation from State-owned enterprises. They were then progressively exposed to a competitive marketplace.

The World Bank reported that, from mid-1980s to mid-1990s, TVEs' annual growth rate was about 25 per cent. In the 1990s, they accounted for a quarter of China's GDP, two-thirds of the total rural output and more than a third of export earnings.

Some TVEs were later merged and became specialised the State-owned enterprises which dominate the domestic and global marketplace.Our TVEs could be positioned as the primary agencies for the implementation of county projects.

TVEs have the potential of advancing rural development and employment, ending crony capitalism, enhancing value for money and fostering an institutional approach to sustainable development.Mr Chesoli is a New York-based development economist and global policy expert.

[emailprotected], @kenchesoli
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Publication:Daily Nation, Kenya (Nairobi, Kenya)
Date:Jul 1, 2019
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