Cleaning up the state alone will not lead to economic growth
Political leadership and courage necessary for proactive reforms
Two of the most important political issues facing SA today are clearing up the mess left by corruption and state capture, and implementing economic reform to put the country on a sustainable and inclusive growth path. The two challenges are intimately linked: who will develop and implement the plans and policies for growth if large parts of the state are corrupt, incoherent and incompetent?
President Cyril Ramaphosa deserves credit for risking party unity by setting in motion processes that have the real prospect of leading to the prosecution of many people in the ANC’s leadership. The rule of law needs to be re-established and the principle that everyone is equal before it (however senior in the ANC or cabinet, however close to the president) firmly and speedily established.
The benefits of ensuring that the corrupt face justice exceed the re-establishment of the rule of law and the cleansing and rebuilding of institutions. Another benefit of exposing and actually prosecuting and jailing wrongdoers is that it helps shift the balance of forces inside the ANC on policy. Many people implicated in the looting of public coffers are also the purveyors of the worst, most populist policy ideas. Some state capturers dress up their corruption by justifying their actions politically. Many try to mask their greed with a more-radical-than-thou pose and rhetorical solidarity with the poor.
Not everyone who has radical ideas is corrupt and not everyone who is corrupt pretends to be radical. However, exposing the dishonesty of those who talk like populists while filling their pockets is an unmitigated good for the country and the reform agenda: it helps rebuild institutions, weakens the president’s political enemies and could help reshape policy debate within the ANC. The relationship between a cleaner administration and potentially sound policies should not be underestimated.
While much attention has been focused on the horrors of state capture, crony capitalism and wholesale corruption of the ANC and the state, the clock is ticking on SA’s other crises. Without faster economic and employment growth the country will sink into even deeper trouble.
For Ramaphosa, limiting himself to dealing with “the commanding heights” of state capture will not be sufficient protection against a resurgence of the worst elements in his movement. His opponents will continue to threaten him as long as the country stagnates, people lose their jobs and increasing numbers of people fall back into poverty. For this reason an urgent component of an effective reform agenda is getting to grips with the challenge of how we can get the economy moving.
Leave aside the rhetoric, and the truth is that little progress has been made in this area. Growth was slower in 2018 than 2017, no-one in the industry thinks the mining charter will result in much new investment, the jobs summit focused on issues that are marginal to the jobs crisis, there will be little new investment if property rights are uncertain and thousands of skilled South Africans are emigrating.
Ten years of state capture and widespread corruption has left government institutions battered and weakened.
Economic reform is not easy. The country is facing some hard constraints: SA has neither the skilled and experienced workers needed to grow quickly for a sustained period, nor the readily available capacity to generate the electricity such growth would need. And though policy uncertainty can be resolved in some areas, sometimes the resolution of debate has been far from ideal. The growth effect of the adoption of some policies about which debate is nearing conclusion — expropriation without compensation, nationalisation of the SA Reserve Bank, national health insurance — may be worse than uncertainties.
SA will struggle to grow quickly under present constraints but we can certainly and realistically expect to do better. To do this, we need to prime the virtuous cycle of increased investor confidence, higher levels of investment and faster growth, and then allow the process to develop momentum. This is unlikely to deliver rapid growth immediately, but if we stay the course growth could accelerate over time.
What do we need to do to achieve this? Here are a few key examples of what needs to change. As Harvard’s Ricardo Hausmann says, SA needs to stop its excessive focus on who owns what and focus, instead, on what needs to happen to expand our productive capacity. In his words: “SA spends far too much time attacking the firms it has, and too little time concentrating on how to attract and develop new firms.”
Integrity matters at the top of critical institutions, but by itself it is not enough; competence and experience also matter a great deal. We can see this at Eskom, where a turnaround is unlikely to be led by a board and management that may have integrity but lack the experience or expertise to put this massive institution on the right path. Appointment processes that pay too little attention to skill, competence and experience and overemphasise the goals of transformation need urgently to be revisited, as do the underlying assumptions that guide them.
SA’s internal market is too small to be the basis for rapid industrial growth, so if we are to grow faster it must be by offering goods and services to the world’s 7-billion consumers. The president has talked about the need to grow our export industries, especially tourism, but it is hard to understand why so little progress has been made on reforming the visa system. Nor is it clear why no-one wants to talk seriously about the potential of light manufacturing, which helped many Asian and other countries industrialise and move millions out of poverty.
Effective reform will require bold leadership and an ability to explain to South Africans that we cannot continue as we are.
There is a global competition for talent. SA needs to get in the game. We must liberalise our immigration regime and actively recruit foreign skills — both these actions could be undertaken speedily and affordably with political will and leadership. We must also get serious about fixing our skills pipeline.
Ten years of state capture and widespread corruption has left government institutions battered and weakened. There has been a spectacular failure of state-led development. Many state-owned enterprises, most national departments of government, provinces and municipalities function exceptionally poorly, if at all. This is a critical point, and one too many of us forget when we are thinking about reform. So unless reformers have a serious plan for improving public policy formulation and implementation, it’s perfectly sensible to question the workability of their proposals.
SA is in grave difficulties. Cleaning up the state is an urgent necessity, but it is not a sufficient condition for getting us out of trouble. Political leadership and courage is needed now to get the process of economic reform under way. The country needs a new national narrative, one that recognises our many crises and accurately and honestly diagnoses the reasons we are in such a deep hole. Effective reform will require bold leadership and an ability to explain to South Africans that we cannot continue as we are. There is no free lunch.
Important choices are required in SA and trade-offs will need to be made. Getting out of trouble will require the recasting of the debate about national priorities. In the process the ANC is going to have to slaughter a few of its ideological holy cows.
• Bernstein is head of the Centre for Development and Enterprise.