The trends have not been promising

Bouncing back into 2019, the world has already encountered the challenges of economic slowdown. We have seen rapid demographic and socio-economic changes, all interconnected with sweeping technological disruptions. Both ageing population in the developed world and a continued childbirth growth in the developing world have brought new challenges to economies and governments. Due to a slowdown of global economy poverty has swept through the developing world even more sharply, another pressure on public participation in economy.

Additionally, increased political tensions raise the probability of inter-sate conflict escalation. These, in turn, raise public expenses on military sector and security. Various destructive ideologies are gaining momentum globally, which leads to increased radicalization and polarization of societies, as well as inadequacies in social capital.

A shock from a pandemic outbreak of 2020, in turn, demonstrates that the challenges persist and are systemic to the governments, who were unable to simultaneously cope with societal and economic consequences of COVID-19.

This shock, in addition to trends of ageing population, technological disruptions, increased urbanization and globalization, requires one to reconsider the relationship between state, business and society to achieve a common positive outcome.

Where to move?

These challenges increase the demand for more sustainable, flexible, and transparent public sector. Moving towards a customer-centric and common value-creating approach to public sector is a key to this transformation. Transparency, in its turn, would hardly be achieved without complete digital transformation of public sector.

In general, as part of transformation of public sector, one should raise a fundamental question of how much the governments should interfere in the lives of its citizens and in economies. On one hand, the pandemic has demonstrated that the “watching” states have coped better with the disease spread at first, leveraging on their strict surveillance systems and punishment structures. On the other hand, limited economic freedom that resulted from world quarantine measures by the public authorities has brought even more challenges, especially in terms of rising poverty and inequality. Dilemma is still in place of whether the governments that limit business activities for achieving social outcomes, in fact, do any good for their citizens’ well-being and wealth in the long run.

As Michael Porter and Mark Kramer pointed out in Creating Shared Value (HBR) article back in 2011, the key approach for governments should turn diametrically towards the idea of shared value for businesses and society.

Current regulatory environment of governments assumes the “us versus them” attitude towards business, acknowledging its detrimental impact on society by trying to achieve profit maximization. The “trade-off” logic has swept through the capitalist world to create the fallacies among policymakers that businesses create obstacles for the well-being of societies. The 2020 pandemic lockdowns have demonstrated the reverse – innovations stemming from business have benefited societies more than government regulations, allowing for remote working and communicating opportunities.

As a result, public sector needs rethinking of its approach to policymaking towards “shared value” thinking, weighing the costs and benefits of their regulatory limitations on businesses for societies. Businesses should be allowed to step up in creating the positive externalities of increasing efficiency worldwide. Thus, a traditional divide between public and private sector needs to pass turn to collaborative action with a common purpose of long-term societal benefit. Forward-thinking and impact assessment tools are the key to this collaboration to be effective and spur economic and societal well-being.

How is public sector in Kazakhstan transforming?

The public sector transformation in Kazakhstan has long been stagnating due to lack of government integrity, flourishing corruption stemming from oil revenues. Lack of motivation of government to achieve societal and economic good is a common syndrome of a natural resource dependent state, grounded in the principal-agent problem, as principal has long been lacking and entire government apparatus was an agent.

Approaching middle-income trap-related stagnation with simultaneous fall in petroleum prices, public sector is swept by societal demands of paternalistic nature. For a long time now, legal businesses have been heavily taxed to achieve societal well-being. This had led to paralyzed private sector innovation and growth, while societal demands keep growing.

As a result, new generation of policymakers has acknowledged the need for deregulating the markets, providing liberty to businesses. This is going much in line with Porter and Kramer’s idea of shared value, as strategists in Kazakhstan now understand the value of business activities on societies.

Public sector transformation, thus, is inclined towards customer-based approach to policymaking, benefiting society as an ultimate goal. Dialogues with business leaders are becoming more frequent and productive and are reflected in the strategic plans of the government. President Kassym-Jomart Tokayev has also pointed to a need for government sector restructuring into efficiency-driven sector, minimizing the government size and maximizing the public-private collaboration.

Kazakhstan, despite its long petroleum-dependent history, is finally approaching maturity and acknowledge that state officials need to pursue public sector structural transformation. Developing countries worldwide, too, have seen a great need in this transformation during the continuing pandemic, acknowledging, finally, that the interests of businesses and societies are not as opposing as was perceived before.

Authors: Anuar Buranbayev, Kainar Kozhumov, Aigerim Kushumbayeva