This paper analyzes the optimal scale of the Botswana government, given a policy
objective of high long-run growth with a reasonably equal income distribution. The
development debate has often reflected a view that there is a trade-off between these
two objectives.2
More recent empirical and theoretical research indicates, however,
that an equal distribution of income promotes growth by raising the average level of
human capital in the economy. 3
In addition, equity is associated with political
stability and social harmony, which are positively related to growth. Finally, the
World Economic Forum (1998) finds that there is a positive correlation between their
competitiveness index and the UNDP’s human development index. Thus, it appears
that a competitive economy does not harm social development.
Mineral rich countries have experienced development problems that stem from the
industrial and institutional structures typical for mineral-led growth. Mineral-rich
countries tend to have both big government and an unequal distribution of income.
This is because the mineral sector is usually capital-intensive, large-scale and
dominated by some of the largest multinational companies in the world.
Consequently, mineral-led growth is often based on a narrow industrial base, and the
income it generates accrues to multinational mineral companies and the government
in the host country. Long-run growth and distribution of income therefore depends
crucially on how government spends and invests the mineral revenue, and to what
extent it creates space for other economic activities with a growth potential in a
competitive environment.