Public institutions and private sector at time of economic crisis in Africa
- 13/11/2009 - Invest in Education to Support Private Sector Growth
Market failures and the global economic crisis of 2008 have forced countries to pay closer attention to the performance of private sector and production activities. Generally, policy makers agree that multi-stage adjustments, led by public institutions, should be pre-requisites and co-requisites for private sector activities. But, in Africa, public institutions may not be able to strategically manage inter-temporary adjustments for selecting priorities and switching them during crisis. Yet, the evidence of the demiurge functions of these institutions remains incontrovertible. This paper argues that public institutions are more strategically placed in promoting aggregate efficiency – transforming low-end human capital to higher-end during crisis. The hypothesis is that public institutions that maintain a positive marginal per capita expenditure on education for creating higher-end human capital over that of marginal per capita expenditure on consumption are able to grow out of crisis faster. The paper introduces the "Hecksher-Ohlin Preference Locus" model and Törnqvist slack index to track the effort to promote aggregate efficiency in Africa.
It finds that few countries have successfully promoted aggregate efficiency, instead of consumption, as a condition for the economies to support private sector-driven growth, and quickly break away from economic crisis.