The Economic Development Board and Threat of Policy Capture

The EDB should endeavour to become the government’s arm of the public-private sector partnership – not a possible adjunct to the already powerful business lobbies

‘Examining the nature of the political process and why obviously good ideas are not happening is the study of political economy, and that is what we should be doing.”
— Tim Besley, Professor of economics – LSE

Has Rama Sithanen unwittingly let the cat out of the bag by speaking about the threat of “policy capture” or “State capture” (which may be more meaningful in the  local context) by the private sector in the light of the composition of the Economic Development Board?

The setting up of the Economic Development Board has come under severe criticisms by no less than the former Minister of Finance and Economic Development, who in a scathing remark, has stated that the actual composition of the Board is tantamount to an “appropriation” of the Economic Development Board by the private sector. His criticisms revolve around essentially two nefarious consequences which may arise as a result of the presence of no less than six private operators among the board members.

First, there is the risk of potential conflict of interests arising from their membership of the board and their position as economic operators.  By virtue of the very nature of the functions of the Board, these persons would at the very least be privy to information about future directions of government policy and would therefore benefit from what could be described as a sort of “information asymmetry” in relation to their competitors and other business operators generally.

In an age and time when “information” is considered to constitute a critical competitive advantage, such access to privileged information can make the difference between losers and winners in a fiercely competitive business environment.

The second issue which arises from the present composition of the Board is that of the very real threat of “policy capture.”  Whereas “conflict of interests” is a fairly common phenomenon which can arise in a variety of settings (board members of private companies, company personnel, civil servants in certain situations) and has been widely studied and written about in the relevant literature, the concept of “policy capture” is perhaps less well understood. The simplest definition provided by Wikipedia is to describe it as “the domination of policy making by private, often corporate power.” This of course begs the question of the how and why of this domination?

To better understand the concept, it is necessary to understand how it has evolved from the debate about policy formation in plural and democratic societies. According to the pluralist theoretical framework, policy outcomes in a democratic setting generally results from pressure from a multiplicity of interest groups. Such supply of varying options prevents any particular group from being continually dominant and allows the public decision makers to “arbitrate” among the competing demands.

It has been noted however that from around the time of the fall of the Berlin wall and the collapse of the USSR, the policy making environment has changed drastically. The notion of competing interest groups has quite rapidly given way to the rise of one dominant group in the form of business lobbies that have emerged as a power system in their own right. This phenomenon has been favoured by the reduction in the influence of trade unions and the inexorable rise of market fundamentalism.

Since the early 1980s, the dogma that markets are always right and government economic decision-making always wrong has gained so much ground that even leftist, let alone social-democratic parties in power have been forced to accommodate the new dominant ideology. Confronted with such a weakening opposition, the business organizations endowed with resources far beyond those of other social groups and institutions have easily positioned themselves as the privileged partners of government with a level of influence over policy making far beyond their fair share.

And this is why Rama Sithanen is right in stating that the composition of the Board, particularly in the present political and social context, will eventually prove to be a huge opportunity missed. Through the appointment of the present board, the government has signalled its attachment to a mode of policy making emphasizing the incorporation of peak private economic interests in policy formulation and implementation.

Given the foreboding real threat of “policy capture”, it is being suggested that the EDB could instead be a distinctively government led institution. It has the potential to become an ideal platform for government to focus its policy making capacity to develop a holistic view of the desired socio-economic trajectory of the country based primarily on a coherent political vision.

The Economic Development Board would thus balance the more short-term market determined objectives of a private sector – which is legitimately motivated by the notion of making the fastest buck in the shortest time – with the longer term vision of a politically determined socio-economic model which serves the wider general interests of the population. The EDB in its role as an inclusive economic institution would foster economic productivity, growth and general economic prosperity.

This is not to suggest that there is an inevitable contradiction between the interests of the private sector and those of the public sector. Indeed the EDB could provide the platform for carrying the erstwhile public-private sector partnership so significant in our past successful economic development into a higher gear more appropriate to the new global economic environment. For that to happen, the Economic Development Board should endeavour to become the government’s arm of the partnership – not a possible adjunct to the already powerful business lobbies.

* Published in print edition on 2 February 2018