President Cyril Ramaphosa will share as his vision for the country in the state of the nation address tonight. Much coverage has been given to the importance of investment as a key strategy. The goal of economic growth is to improve the quality of life of all citizens and to provide the basis for a sustainable future for all. This vision needs to be built into the president’s economic plans. Illustration: KAREN MOOLMAN
President Cyril Ramaphosa will share as his vision for the country in the state of the nation address tonight. Much coverage has been given to the importance of investment as a key strategy. The goal of economic growth is to improve the quality of life of all citizens and to provide the basis for a sustainable future for all. This vision needs to be built into the president’s economic plans. Illustration: KAREN MOOLMAN

Everyone accepts that to create a more equitable society we need to grow the economy. As we wait to hear what President Cyril Ramaphosa will share as his vision for the country in the state of the nation address on Thursday evening, it may be worth reflecting on past strategies to achieve this goal.

Much coverage has been given to the importance of investment as a key strategy. Ramaphosa’s investment target is $100bn (about R1.2-trillion) over five years. Key to this is an undertaking to create a business-friendly environment, which means tackling the cost of doing business in SA and reducing red tape. But will the investment drive, even if it is mildly successful, generate a pattern of economic growth that takes on the key challenges in our country?

Economic growth is not an end in itself. It is the means to achieve a society that is free, equitable and sustainable. Many societies, over time, have achieved high levels of economic growth but often the benefits have accrued to only a small group, while the majority have been left worse off. SA is a good example — in the 1950s and 1960s our growth rate was among the highest in the world, but the growth was associated with dispossession and racial oppression. Only a small group, mainly whites, benefited. Both the patterns of growth and distribution of growth are important. To use terminology economists love, growth is a necessary but not a sufficient condition for meeting our economic and social challenges.

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A business-friendly approach did attract new and significant investment in the past, but these investments failed to generate a fitting pattern of economic growth for the structural economic challenges we have. Moreover, there are good reasons to suggest that this approach, while generating growth, may well have increased inequalities in our society.

Ramaphosa needs to do a lot more than attract investment if we are to build an inclusive and sustainable society. An essential component of a good growth strategy is good social policies. Experience across the world, including in the postwar period in Europe, the Scandinavian countries, East Asia and Latin America recently, highlights the importance of effective social policies such as health, early childhood development, housing and education in generating growth that is inclusive and sustainable.

The lesson is that, correctly designed and effectively implemented, social policies will generate growth because, among others, it is an investment in people and has significant spillover effects, for example in health infrastructure expenditure. We need to design our social policies as engines of growth, rather than something that should follow from growth, which is the narrative we hear all too often. Of course, prudent economic policymaking needs to carefully combine social policy with macroeconomic policy to ensure sustainability.

Besides the glaring problems in areas such as health and education, two deeper issues of social policy need to be considered. With a few exceptions, the SA economy is a comfortable place for “big men”. More than half our population is held back by gender discrimination and violence — in the household, in our educational institutions, in the workplace, and in the wider society. A set of targets is needed that measures, as part of a growth plan, women’s improved participation in the economy. This could include the gender pay gap, enrolment in education and progress in women’s earnings across the economy, including the informal economy.

Second, ours remains a highly unequal society — across race, gender and income levels. The statistics are quite stark. The wealthiest 10% of South Africans earn almost 60% of our income and own 95% of the wealth. This is not a basis for a society that will generate sustainable growth. Instead, it is a basis for a society that will have rampant greed and corruption, high levels of conflict, high levels of crime and low levels of growth.

We need growth policies that promote social mobility in SA — the movement of individuals, households and social groups up the social strata of our society. More effective education, especially higher education, is very important for social mobility. But so are other things — for example, spatial planning, reducing transport costs and creating opportunities for women, particularly black women, young people and other marginalised groups to reduce the unequal power that  “big men” in “big business” exert over the economy.

Another key lesson from the literature on growth is the importance of effective government and good governance. Unfortunately, in many parts of our country the government is failing to provide even the most basic services: water, electricity, policing and so on. In a modern economy, the government has an important role — not just to provide basic services and create a business-friendly environment, but to regulate the economy effectively to ensure growth is inclusive. The international evidence, particularly in the recent period, is quite conclusive — unless the government regulates the economy effectively it will generate growth that accrues disproportionately to those with wealth and power.

Areas such as competition policy and regulation of technology, information, the environment and taxation are all critical elements of economic growth. As the custodian of our future, the regulation of natural resources, and more generally, the environment, is really important. As the conflict between mining interests and communities in the Xolobeni area of the Eastern Cape shows, just attracting investment without dealing with the complex environmental and social issues can generate conflict. What we need is an effective, capable and intelligent state with regulatory authorities that can exercise the necessary independence to bring communities on board with development, and that are adequately resourced.

A third lesson from the growth literature is that economic growth will lead to a set of “blockages” and generate a process of “creation” and “destruction” that has huge benefits but also social costs. In a society as unequal as ours, there is a high probability that the benefits will accrue to the wealthy and the costs will be borne disproportionately by the poor. A sustainable growth process has to ensure vulnerable groups in society are protected. We are fortunate in SA to have an effective social protection system and policies — such as the national minimum wage — which protect earnings at the lowest end of the earnings distribution. An effective growth strategy needs to carefully consider structural transformation costs, so that the poor are not further penalised.

We know a lot about growth and the growth process. Policies that promote an open economy, high levels of saving and investment, to name just a few, are very important. However, focusing exclusively on investment and creating a business-friendly environment has not, and in all probability will not, generate inclusive and sustainable economic growth in SA in the future. The goal of economic growth is to improve the quality of life of all citizens and to provide the basis for a sustainable future for all. This vision needs to be built into the president’s economic plans.

• Prof Valodia is dean of commerce, law and management at Wits University and leads its Southern Centre for Inequality Studies.