[Viewepoint] A country is not a company

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[Viewepoint] A country is not a company

Ever since Rudiger Dornbusch and Stanley Fischer published “Macroeconomics” in 1984, there has been a slow educational trend, mostly in business schools, to view a country as a company, to apply the thinking of microeconomics to the realm of macroeconomics.

Is this good or bad? From one perspective - that of trying to understand what is going on - this is a good thing. It provides a simple model within a closed system and allows the use of two-axes graphs to show how one thing affects another. And, sometimes, simple is good. But from another perspective it is less good, bordering on bad. And that’s not because of the simplicity brought to the modelling, rather that it simplifies our thinking as well. By looking at a country solely through economic, read business, eyes, we reduce the vision of a country to its production values (GDP) and gear everything else to that.

Singapore is a great example. There, the leadership realised that with no land and therefore no primary industry to speak of, the only future for the country was in attracting trans-national corporations. That they have done so well and successfully is without doubt but at what social cost? The whole country is clean and efficient, some would say too much so, and their entire education system is oriented largely to satisfying the demands of the business world. But the lack of social debate is noticeable. In a small nation, keeping one’s head down is essential to economic survival.

New Zealand is heading in the same direction, albeit more subtly. For decades now, the country has run a high-qualification, low-wage regime. This has attracted some foreign interest but our geographic location has not been as kind to us as Singapore’s has been to it. This has ultimately resulted in roughly 20 percent of the citizenry living and working overseas, the law of unintended consequences ruling that people acting in rational self-interest will seek suitable compensation for their abilities, overseas if necessary.

The country is heading towards a low-qualification, low-wage regime, which fits perfectly with its focus on primary production. Yes, there is considerable talk, and effort, going towards increasing productivity in that realm but this, again, is an economic measure. And social debate? Yes, it exists so we score better there. But to counter that we have the tall poppy syndrome, a form of self-censorship.

What does this mean for small nations? Are they destined for SME status in the world economy? Small nations are wonderful test beds for new ideas. They provide a relatively homogeneous population base, common culture and language and a constrained economy. In essence, a small- to medium-sized enterprise. The major problem with seeing them as SMEs is that there is nowhere to send the nonperforming “employees.” It is not possible to sack a citizen.

What to do? One alternative is to try more of the same. But if treating a country as a company has not worked to date why should it be expected to work in the future? Particularly with an aging population and all the health and social consequences of that. Another is to use the test-bed for some truly radical ideas. Like freeing the cultural sector - education, health, the arts and research - from the constraints of government and business. And putting the state in its right and proper place, governing not managing.

Right now, seen through business eyes, the two countries mentioned have quite severe governance problems. There is no distinction between the chairman of the board and the chief executive.

The separation of powers has been blurred to the point of dangerous concentration. Are small states capable of demonstrating, in practice, that a country is not a company? Only time will tell.

*The writer is the director of people and process in Wellington, New Zealand

By Stephen Hay
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