Big government, small government and the Covid-19 government

LIM Hwee Hua - author of Government in Business: Leading or Lagging? - knows a thing or two about both government and business. She retired from Singapore politics in 2011, last serving as Minister in the Prime Minister's Office and Second Minister for Finance and Transport. Before and since, she has been active in business and finance.

In her new book, she tackles an old debate. What role should governments play, vis à vis the private sector? When should they regulate, and when should they step back? When should they nationalise, or privatise? Bail out firms, or bow out?

As it turns out, it all depends; not least, on whether you're in the middle of a pandemic.

Breathless bureaucrats

"Have a heart. Let's be fair," Mrs Lim writes, in defence of hapless regulators. It's in the nature of businesses to constantly test the limits. And when it comes to attracting the most innovative brains, the game is stacked.

In case you're wondering, the private sector is tipped to win.

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As waves of disruption swept the past decade, governments were running to keep up. The book has plenty of familiar examples. The battle between ride-hailing apps like Grab, and taxi operators like ComfortDelGro. The hasty adieu that bike-sharing firms bade Singapore in 2018-19. Just last year, the overnight ban of personal mobility devices on footpaths.

Entrepreneurs and regulators have had such tussles all over the world. And as Mrs Lim points out, it's difficult to strike the right balance. Over-zealous regulation can stifle innovation. A laissez-faire approach can see social costs begin to snowball.

Awkward bedfellows

Despite the tensions, governments and businesses aren't portrayed as enemies. Often, partnerships are needed. Unfortunately, "public-private partnerships" look good on a menu - but are easy to muck up in the kitchen.

It's especially tempting for pocket-dry governments to team up with the private sector on costly infrastructure projects. But these are prone to missteps - like overly optimistic usage projections, poorly structured deals and misaligned incentives - that exact a political cost.

Here, the Singapore Sports Hub receives some scrutiny ("the outcome was unfortunately not quite up to expectations"). So do white-elephant railways, ill-conceived road tolls, and abandoned projects in countries like Taiwan, Chile and Malaysia.

But there are positive examples, too. Bangladesh's resolve in working with investors and international bodies has delivered electricity to millions. Indonesia's Royal Golden Eagle Group has helped tackle haze by equipping villagers with new farming methods. When gotten right, says Mrs Lim, public-private collaboration can be a "beautiful, and healthy" thing.

In peacetime, tread lightly

In general, and especially for mature economies, Mrs Lim leans towards allowing market forces to prevail, and companies to innovate without drowning them in rules. Governments must keep pace with new developments, she says; and tap private sector expertise, while reserving the right to decide on the larger good.

Bailouts should only be a last resort - no matter how beloved a national icon a firm may be. State-owned enterprises should be continually reviewed for their strategic relevance. Many worldwide are bloated, inefficient and ridden with corruption. They also should not be mistaken for policy execution arms. Her disapproval is palpable, of governments exerting pressure to lower electricity tariffs "by a mere stroke of the political pen". She also cautions that India's move to reserve railway jobs for 23,000 lower-income workers could perpetuate inefficiencies and higher fares.

Still, she stresses, governments must step up in domains essential to the public interest, but susceptible to market failures; like infrastructure, healthcare and climate change. And above all, she calls for governments to plan long term, demonstrate consistency in their principles and dealings, and resist "populist" calls for politically convenient responses.

But now, what?

The book's 64 case studies are excellent: an encyclopaedia of best (and worst) international practices, and as a bonus, snappily titled. (One describes how the Singapore government divested its engineering capabilities, to its regret once the trains started breaking down. That one gets dubbed: "Engineers - Now You Need Them, Back Then You Didn't.") But there is not enough material on how governments are responding to Covid-19.

Granted, the pandemic is still unfolding, and policy post-mortems premature. And yet, the world is now emerging from the initial shock, and moving gingerly towards recovery. We are at a crossroads, where decisions taken will set the tenor for the next decade, and for future generations.

Really, we could use some advice.

Looking back, the Great Depression is a common reference point for Covid-19, though one hopes the current slump will not be nearly as prolonged. In the United States, the same Depression ushered in a new era of expansionary fiscal policies and stronger social safety nets - like unemployment insurance, and social security - under President Franklin D Roosevelt's New Deal. Only decades later, when Ronald Reagan took office (and Margaret Thatcher in the United Kingdom), was "big government" decisively reversed.

Years from now, will Covid-19 have faded into a bad dream? Or will it have had lasting impact on state programmes, the social compact, and the role of governments?

Though Mrs Lim never quite grabs this increasingly important question by the horns, she subtly makes her position felt. "In peacetime, healthy robust debates over the extent of state involvement and guarding against populist tendencies are par for the course," she writes. "However, when a crisis as wide-ranging and severe as that triggered by the Covid-19 pandemic occurs, political leaders would be compelled to think on their feet and rely on their innate instincts, for better or for worse."

In the epilogue, she is more explicit: "Hopefully, there would not be too many of such episodes, a deviation from the norm," she writes, on governments' command of private sector activity during the pandemic. The point is well taken: stay calm, think long term - and once we have tided through, pull back.

Readers may agree or disagree with Mrs Lim on the latter, depending on their world views. Also well open for debate is where the lines get drawn between populism, and genuinely needed reforms. This should not deter anyone from picking up the book. It is a good repository of examples, which can only help to inform better decisions. And wise decisions are sorely needed from our governments today, be they big or small.

• Government in Business: Leading or Lagging? retails for S$28 in paperback and S$56 in hardback (before GST) at major bookstores and online.