“Ya re go latswiwa bobe etswe bololo.” This is a Setswana proverb that directly translates into “The cow that is frequently covered eventually develops sores.” It is simply a cosseted child being unaccustomed to realities of life. My understanding to this proverb is relative to how too much regulation and control could ultimately slow growth.
But then again, how would we describe regulation in this context. Well, regulation here could be perceived as being indispensable to the proper functioning of economies and societies. They create the “rules of the game” for citizens, business, government and civil society. They underpin markets, protect the rights and safety of citizens, and ensure delivery of public goods and services. Generally, the purpose of regulations is to keep individuals and/or the environment safe. “Yet regulations impact people’s ability to create innovative products or services to serve their communities and employ people.”
It is the last statement for me that makes this conversation a bit more rustic relative to present economic conditions. Economies across the world are currently under fire and as response, most nations rely on regulation as a message that the current government is vested in law and order as a way of revealing its conscious and unconscious bias for economic recovery with little regard for the possible class undertones that may sprout.
Regulation emphasises the formal ordering of parts and their functional interrelations as contributing to the maintenance needs of a structured economic system. But it is that formal ordering that tends to limit the creative innovation space for urban livelihoods in the context of widespread and rising de-industrialisation, joblessness and poverty. This catapults us back to the Keynesian era.
I picked an economic theory, Structural Functionalism. I think this theory brings a bit more intelligibility to the argument. Structural Functionalism is a macro theory that looks at how all structures or institutions in society work together. As referenced simplicity, functionalism is “a framework for building theory that sees society as a complex system whose parts work together to promote solidarity and economic stability. This theory focuses on the roles people perform and the idea that behaviour follows established norms, which helps to maintain social order. The theory italicises the interconnection between people and institutions, accentuating that when something shifts, either in the institutions or in the people, the other must change or compensate to restore the equilibrium.
Let us bring it home for a minute our economy is currently under-fire and that cannot be argued. There is a bit of contradiction in our recovery plan and development plan. New reforms are being introduced as an attempt to tighten the ship and legitimise direct government involvement in productive activities in developing countries by promoting industrialisation through import substitution, investing directly in industry and agriculture. But what is the impact of this tightening?
My perspective is based on the compliance costs of regulation, which are external to the regulatory agency and fall on consumers and producers in terms of the economic costs of conforming with the regulations and of avoiding and evading them. What are the short-term and long-term effects of regulations on total factor productivity?
In the short-term, an infant economy such as ours may benefit from too much regulation. Let us take an example of industrialisation through import substitution. Anecdotally, the efficacy of promoting import substitution can indeed reduce the total costs, including the cost of reduced competition, thus increasing savings and ultimately banking on the positive effect regulation has on the dynamics of productivity growth and the development of new goods and services therefore seems essential to growth.
However, the short-term effects do not necessarily take into effect the impact of inflation and product quality. Again, global trade participation is not really considered in the short term as has been the case locally. But we are an emerging market and therefore global trade is imperative.
Let us now bring inflation into conversation. If inflation is high, arbitrage opportunities in the form importation of substitute commodities of local production arise as an attempt to maintain product quality and marginal profit participation, giving rise to innovation of factors of production, thus maintaining participation in global trade which is essential to sustainable economic growth in the long term.
In conclusion, our inflation is up and arbitrage opportunities will arise. Regulation may seem like the right approach to protect the infancy of our economy. However, regulation may restrict the sprouting of innovation through import substitution as a way of attempting to stimulate local economic recovery. This may have dire consequences on our long-term sustainable economic growth as a result of failing to keep up with global product quality, which is baseline influenced by innovation. (Check out the Singapore and 3D printing case study). Basically, the licking of our economy through regulation, “Go latswiwa bobe,” may have undesirable consequences ultimately our economy “e tswe bololo.”