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Government’s role in economic development

Isa Senkumba

Government’s role in economic development

Uganda's tourism potential is hugely under-exploited which partly contributes to the country's large foreign exchange deficit

Uganda’s tourism potential is hugely under-exploited which partly contributes to the country’s large foreign exchange deficit

All nations dream of economic growth and development. Some end at dreaming about it while others get out of their shells and pursue it. There are many key players in the move to create a prosperous economy. Sometimes we are tempted to ask ourselves the question: Is there a role for government in the economy? Yes.

The government’s role is summoned up in maintaining economic stability. Fiscal responsibility is an important part of that stability. Government debt can quickly become a burden on the economy and weaken its foundations.

Sound macroeconomic policies enhance the credibility of the government and strengthen the political institutions. This credibility is vital for economic stability and the country’s long-term investment decisions that allow the economy to flourish.

Government ought to know that in order to restore economic stability, > and provide oversight that assures private citizens that their transaction partners in the marketplace are held accountable. This will allow market participants to begin putting their resources back to work in the areas where they are most beneficial.

It is no longer a secret that large deficits can contribute to price instability. If the government finances the deficit by printing money, which makes foreign goods more expensive. This puts increasing pressure on the domestic price level by raising the price of imports. If the government issues debt, competition with businesses and other individuals for investment dollars results, increasing the cost of borrowing to finance productive investments in the private sector.

One of the fundamental tasks that can only be done by government is to fund the science needed to build the technological base for a sustainable economy.  Research universities have to be started and they should be funded by peer-reviewed, competitive government grant programs.

When coupled with the creativity hard-wired into people’s culture, they create a unique asset that can be used to develop a leadership position in sustainability technologies. The work of our scientists and engineers could not be more important.

Government must fund the basic research and enough of the applied research to demonstrate possible profitability. The tax code must then provide private firms with incentives to invest capital in these new and speculative technologies.

Everyone wants the economy to grow because everyone knows that a growing economy puts more money in families’ pockets, the poor and unemployed have an easier time finding jobs, and families can save for retirement or their children’s education.

The question that everyone is now asking himself is what makes the economy to grow? Fortunately you don’t need a degree in economics to answer this; you just need to think carefully. Common sense can help expose some popular but mistaken myths about the economy.

The economy is like an apple pie we put on the table to slice and share.  When sliced into pieces for all of us to share there is a very small piece for everyone to take home.  But with the right conditions, we can create more wealth:

That is, we can make the pie grow. Some create more than others and may end up with bigger slices; but in the long run, everyone can end up with a bigger slice than they would have had otherwise. That’s a win-win. When we unanimously agree on this then the next question will be: Who is slicing the apple? This is where politics sets in and I don’t want to go there.

Conventionally, trying to spread income around by redistributing what people have earned through their  own efforts actually hinders the creation of new income.  We cannot forget that creating more income, growing the apple pie, is the only known way to increase overall prosperity.

Fortunately, we know how to grow the economy, how to make the pie bigger:  Individuals should be working and trading and creating freely. At least not by government taxing away our income, restricting our economic freedom, and spending our money supposedly on our behalf but really on its own priorities.

The economy grows when individuals and businesses succeed in recognizing new markets and new opportunities and accept the risks involved in pursuing these opportunities in the hope of earning income. Each of these elements is important, like a recipe of many ingredients.

The absence of any ingredient would diminish the taste of the dish. For example, the economy grows when someone sees an opportunity to meet a need and can marshal the resources to meet that need.  The role of government is then to create a favorable environment for this operation.  Short of that we are in ping pong circus.

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