An interesting paper over at Vox EU which looks at one of the reasons why some places stay poor while others get rich. No, that's not the major focus of the paper but it is one of the things that gets partially explained.
But that just raises the question, “what is this ‘policy uncertainty’ firms hate?” Is it unpredictable inter-temporal changes in the rule? Or, they could be taking a firm level view and regard policy, not at the high level mapping, but policy is what happens to them. With weak capability for implementation even if the policy doesn’t change, there could be a great deal of uncertainty for individual firms about what the agents of the state are going to do. They may ask themselves: what are the deals available to me?
Another way of putting the same point is that it's not so much what are the laws which are important, what are the hoops we've got to jump through, barrels we've got to jump over, but which of the laws are going to be applied? Not, is the profit tax rate, or the minerals extraction tax rate, 10% or 50%, but whatever the rate is, will my competitor have to pay the same, will I have to pay tomorrow what they tell me I've got to pay today?
In short, less what the law is but that the law will be applied impartially, that we actually have the rule of law rather than the rule of men and deals.
Now, yes, this is about uncertainty in Africa but it spills over into two further points applicable to our own, much richer, economy. The first is that to avoid the same problems we must insist upon it being the letter of the law which has to be obeyed, not the spirit. For that spirit is of course an interpretation by whoever is doing the interpreting: the rule of men again, bringing with it uncertainty.
The second is that government simply shouldn't be negotiating with business to provide deals to some which they do not offer to others. no special tax breaks, no relocation funds, no special terms on capital or loans, for this brings us back again to that rule by man and thus privileges to those who have the ear of The Man. Set the general rules, write the laws and then enforce them impartially.
Like so much else in this world, if it's true in Africa it's true here too: we are all humans and we do all have much the same reactions to the same incentives.
