It is safe to predict that governments, corporations and social problems will grow in size and complexity. Consequently, the international community must adopt a new way of thinking about the relationship between government and business if destabilizing social conditions are to be successfully addressed. We must move from the skeptical and often times adversarial posture to a 21st Century “Compact of Collaboration.”
This notion is built upon the recognition that the global proliferation of joblessness, under education, migration and social discontent are challenges too big for either government or business to solve alone. The scale of these borderless conditions has the potential to be overwhelming, and government and business must come to the realization that they need each other—in real ways, not touchy-feely “we must all get along” ways—if societies and countries are to remain stable and provide an acceptable quality of life for their citizens.
The need for this new relationship—this Compact of Collaboration—is driven by the fact that much of the world today is dissatisfied, unstable or violent. It’s a global illness rooted in economic conditions: underperforming private sectors, weakened by corruption or crippled by government policies, create too few jobs which generate too little resources to sustain even a marginally progressive government and its programs.
According to the World Bank, about 200 million people are already unemployed, and the ILO reports that nearly 1.4 billion people are underemployed or work in vulnerable occupations with limited continuity. These people—and more—are ripe for boredom, disillusionment and worse, and we need medicine to avoid a “pandemic of discontent.”
The solution is not creating more make-work public sector jobs. This go-to solution in too many countries is unsustainable and actually counterproductive since government jobs create no wealth, and therefore no real economic growth occurs, no real jobs are created and the tax base is never increased. Rather, the artificial expansion of government payrolls bloats already bloated and inefficient bureaucracies, which are themselves unaffordable as well as angering to the public because of their recognizably weak quality of performance. For example, Greece has been the EU’s poster child for economic mismanagement, so it is no surprise that nearly 25% of the country’s workforce is employed by the government, and the World Economic Forum’s Global Competitiveness Index ranks Greece 134 out of 137 countries in terms of public sector performance. This is not to say that governments are unimportant; to the contrary, they are critical providers of all manner of public services and reasonable regulations, but they were never intended to be the default employer for a weak economy.
The real solutions for economic growth and prosperity only come from one source: the private sector in a market economy. It is the only engine of a society that creates real jobs, pays real taxes, builds real products and, in developed countries, the only sector that invents and innovates which, in turn, stimulates the virtuous circle of product, job and wealth creation.
But, the fact that the private sector can only deliver these “sustainable” conditions if it works in partnership with government is a dynamic relationship that has been hard to embrace. In fact, there is a co-dependence between government and business that is rarely if ever recognized.
In the 21st century this partnership must be more horizontal than vertical. This means that the old notion that a government can simply regulate without regard to economic consequences, or, as in some countries, even dictate commercial behavior—do more of this and less of that—is no longer workable, if it ever was. This is painfully true as governments regularly demonstrate their inability to solve problems and their economic insights are becoming increasingly unreliable as highly complex and emerging technologies, such as big data, AI, digital platforms and internet connectivity, are driving the global economy.
Today and tomorrow, a government’s job is to establish, manage and protect a country’s institutional structure, but its new job is also to actively enable the private sector. In other words, it must consciously create a regulatory climate that encourages business to innovate, profit, expand, hire and feed a supply chain—and repeat the process over and over. That’s the free market medicine that works, but it only works if government can accept the fact that it’s both an overseer and a partner of the business community.
If government regulates too much—and that’s always its inclination—and enables too little, business cannot deliver the much-needed ingredients of a healthy society. You can’t hobble a horse and then expect it to run faster and faster. And this is particularly important if the only transportation you have is a horse.
As global problems become more acute, a recurring theme among intellectuals and in government circles is that “business should do more”—and that’s a fine ambition, but it must be given the environment to be successful and “more” must be carefully defined. There’s an old axiom—business can only do good if it does well—and that’s common sense. Struggling enterprises, big or small, spend all their energy surviving; successful enterprises have the latitude, the optimism, and the economic ability to take on a variety of challenges as part of their approach to citizenship.
Make no mistake: this is not an argument to abandon all regulation, embrace monopoly behavior or wink at crony capitalism. It’s simply the recognition that if you need transportation, and you only have one horse, it makes good sense that you feed the horse, give it a comfortable place to live, and ensure that it has a long and happy life. However, if you choose to dislike the horse, punish it unnecessarily, feed it poorly and tell all your neighbors that horses are unpleasant creatures, you’re going to wake up one day and find yourself walking to a job that may soon disappear.
The Compact of Collaboration is critical; and central to its success is the understanding that this new relationship between business and government is a two-way street. Government needs business to operate at a high level in order to create much-needed prosperity, but business also needs government. How? Because the private sector needs rules of the road. It needs reasonable laws and regulations that create boundaries for business behavior—rules that ensure fair competition, honest marketing, product safety, and prevent corruption of all sorts. Business also requires an independent judiciary that can fairly adjudicate disputes, and it cannot function without an education system that produces workers with the skills required by the local economy.
Simply said, government and business depend on each other to create and sustain a prosperous society. So, how do the members of these two communities, with their historic misunderstanding and suspicions of each other’s roles and activities, forge this new relationship? Dialogue. Business and government leaders must talk and listen regularly, exchange ideas about the economy, identify problems, debate solutions and collectively and transparently put them into effect. And, this dialogue must become an institutionalized part of the public governance process. That’s the secret sauce!
The 21st century Compact for Collaboration is nothing more than the collective recognition that government will never be able to address intractable social problems without a healthy market economy, and the business community will never be able to produce the necessary jobs, revenues and ideas without the assistance of government. In the language of the cognoscenti, that’s synergy, but in truth it’s just old-fashioned horse sense.
This article by CIPE Board of Directors Chairman Greg Lebedev was first published in the Diplomatic Courier on August 17, 2018.
Watch this video to hear Lebedev speak more about this topic. He was a featured panelist at the recent GLOBSEC Bratislava Forum.