MCEBISI JONAS: State needs trust-based model of economic recovery and governance
State capture has fatally weakened the state, reduced business and investor confidence, caused policy uncertainty and undermined state legitimacy. However, these damaging consequences are symptoms of the contradictions and structural weaknesses in our political economy.
Dismantling state capture will not necessarily address these issues but will create the conditions under which they can be tackled and fundamental change effected.
Modern industrialised economies require robust engagement between the state and private sector on interests and policy perspectives. It would be naïve to assume all engagements between business and the government take place through collective, public processes: there are specific issues that affect small groups or individual businesses, which bring benefits to some and costs to others. In other words, there are always winners and losers.
Here, however, a line must be drawn between legitimate and national interest representation of interests, and the abuse of influence or connectedness. The deployment and appointment of "enablers" of capture at the executive, administrative and technical levels in the government and the state-owned enterprises has displaced the meritocracy, hollowed out the state and redirected resources away from service delivery to private wealth acquisition. In the process, the state has lost its legitimacy to lead society behind a common purpose.
Daron Acemoglu and James Robinson’s 2012 book Why Nations Fail explores the implications of state capture for long-term growth and development. They put the emphasis not so much on the interaction between people in these networks of privilege as on the institutions that lie behind the networks.
Societies grow and become prosperous if institutional arrangements are "inclusive" and reward innovation and enterprise.
Though the genesis of state capture predates 2009, the past decade has set back our efforts to restructure and transform the economy. For a few decades, South African growth closely tracked world GDP, but since 2010 it has lagged the rest of the world and is worsening. In the past four years SA has fallen from the second-biggest recipient of foreign direct investment in Africa to the sixth-biggest. Business confidence has drifted down and at the end of 2017 was at its lowest point in 16 years. The banking sector reported a marked decline in the uptake of credit over the course of 2017. Fixed investment in SA is a fraction of what it is in other developing markets such as China.
Furthermore, as the South African economy has restructured from a low-skills mining, agriculture and manufacturing economy towards a higher-skilled services economy, the high rate of return to skilled workers has exacerbated inequality. The salaries of skilled people have increased roughly twice as fast as the salaries of unskilled people, mainly because of the failure of our education system to produce sufficient numbers of skilled people, and is directly linked to the incapacity of our captured state to rally society behind fixing our education system.
Economic stagnation has increased social discontent, which has fuelled antidemocratic populism, particularly among the youth.
Harvard academic Yascha Mounk distinguishes three primary dangers of populism. Both the left and right wing varieties define enemies, as opposed to political adversaries, who can then be vilified and dehumanised. Populists also claim to speak "for the people", and "once you’ve said that you alone speak for the whole of the people, any form of opposition to you immediately becomes illegitimate".
Populists not only provide ideological alternatives within the democratic system, they reject the democratic system itself. In our context, rising youth unemployment and increased social discontent have fed the growth of populism both within and outside the ANC, together with a developing narrative that our constitutional provisions, a free media and an independent judiciary were constraints to transformation.
While our institutions of democratic accountability acted as a bulwark against state capture, high levels of social discontent remain.
The coincidence of unfavourable global conditions and our high-inequality, low-growth trap requires a new consensus:
Dismantling abusive patronage networks, including the conditions that enabled the institutionalisation of these networks. We must also focus on the less high-profile but equally damaging networks that express in local and regional politics and governance institutions.
The security cluster must be overhauled and SOEs again repositioned as the front-line forces of the developmental state.
Building a compact for inclusive growth, which requires both investment-led growth and active redistributive measures. Economic growth without transformation will reproduce and exacerbate inequalities. Transformation without net growth in investment and output will result in unemployment and poverty increasing.
Lessons from the high-growth Asean bloc over the past few decades offer useful insights: high levels of investment in fixed capital in the productive economy; high levels of investment in research and development and technology; a strong focus on exports; a strong focus on human capability; a pragmatic (trade-led) approach to international relations; greater emphasis on meritocracy and technocracy; and close collaboration between the state and private sector.
Creating a national obsession with education and skills development. Good-quality basic education is both a development goal itself and a crucial ingredient of economic development. Three change levers for the sector must be activated: strengthening school-performance monitoring and accountability; rapidly improving the capacity of school leadership and educators, including competency testing of school principals and teachers; and aligning the skills pipeline with the labour market demands.
Building a high-performance state, based on four levers of change: restructuring and rationalising the state, including consolidating the number of ministries; reassessing the devolution of functions and capacity across the three spheres of government, including the challenges presented by unviable municipalities; gearing SA’s metros to contribute more to national investment and revenue targets; and supporting the restructuring of SOEs. Besides being repurposed for corruption, Eskom, for example, has an unhealthy spread in the energy sector, controlling generation, transmission and distribution.
Brokering a new consensus for inclusive growth requires new levels of leadership vigour across political formations, as well as business, labour and civil society. This is critical to address the trust deficit and negotiate the trade-offs necessary for inclusive growth.
The current optimism associated with the leadership transition must urgently translate into a coherent programme.
In this regard, we require fresh thinking on agency. We need a strong state that can lead economic restructuring, deconcentrate economic ownership and grow productivity in new sectors and new entrant firms; a strong and dynamic private sector that can continually innovate and grow productivity to retain and increase market competitiveness; a strong civil society that can champion socioeconomic justice; and political leadership capable of putting the interests of long-term prosperity above short-term expediency.
Dynamics within the governing party will be a major deal breaker. The ANC remains highly fractured around competing patronage interests, with these contestations continuing to find expression in state governance and functionality. This undermines the legitimacy required to lead society and negates its potential role as the modern prince leading the transition to a more just and equal society.
Without a new vision of where we are going, without a trust-based model of economic governance and the necessary coherence, co-ordinating capacity and accountability, our new consensus will be stillborn.
• Jonas, a former deputy finance minister, is a presidential investment envoy. This is an edited version of a speech he made at the Motlanthe Foundation inclusive growth conference.