Other Economic Roles of the State

It is also possible to sketch out other possible roles for the state. One particular area in which the state has a comparative advantage over the private sector is in mobilizing capital. Capital markets in Ghana and the rest of Africa are underdeveloped, and investors may not be willing to risk their own funds because they fear future changes in government policies or are uncertain about the strength of the economy. In Ghana, despite relatively good economic performance since 1983, investors have been unwilling to invest capital because of uncertainty about the PNDC's future economic policy. However, the state has, in Lindblom's term, "no fingers" when it comes to management because of the many possibilities for public failure enumerated above.^[51]

Therefore, although in many cases African states can provide capital for SOEs to begin operations, they should allow management to be firmly in the hands of the private sector. Allowing the private sector to manage state-owned firms would also increase the likelihood that the state firms would be insulated from political decisions and that these companies would be able to respond to price signals. Indeed, in Ghana and the rest of Africa, this kind of reform is much more feasible than privatization precisely because of weak capital markets. State ownership and private sector management would also alleviate the fears of many African governments that actors in the private sector would accumulate too much power if they were to gain outright ownership of too much of what was previously possessed by the state. While management contracts and other measures that "privatize" the operation of state firms are also extremely difficult to implement, they should at least be considered as part of the arsenal of measures used to reform state enterprises. Privatization, a glamorous policy with little application in Africa, has received far too much attention while more useful measures like management contracts have been understudied.

The boundaries of the state can also be defined spatially. State intervention in the economy should be biased in favor of rural projects. Entrepreneurs have a strong incentive to invest in projects in Accra, Tema, or Kumasi right now because, as in most African countries, these are the only areas where infrastructure is relatively well developed. The PNDC has made what is now the customary pledge in Africa to develop infrastructure in the rural areas, but given past performance, entrepre-

[51] Charles E. Lindblom, Politics and Markets: The World's Political-Economic Systems (New York: Basic Books, 1977), 65.

neurs doubt the government will become truly committed to the rural areas. State intervention is therefore probably most justified in the rural areas. Through such intervention the state will be able to compensate for the private sector's uncertainty over its intentions; further, giving special attention to the rural areas will signal the private sector that greater attention to the countryside is warranted. Correspondingly, there is less reason for the state to be involved in projects in the urban areas where there can be much greater certainty about the future level of economic activity. A bias for state involvement in the rural areas would also have the added advantage of allowing the state to collect more information on the developing rural economy.