Measured boldness is now what’s required to stimulate the economy
The poor performance of the economy means we cannot continue with a rigid adherence to fiscal discipline of the kind we have been pursuing
Cyril Ramaphosa’s first state of the nation address as elected president of the country struck a welcome balance between realism about the depth of the current crises and optimism about how this can change under his administration. He did not mince his words on the problems in governance, the economy and social relations.
It is good that the president made the economy the first of his seven priorities, noting that it is a “concern rising above all others”. We know that our problems are vast unemployment, poverty and inequality. The president also acknowledged that economic renewal must take into account the changing nature of work and must be attuned to needs of the global climate crisis.
While some in the SA Reserve Bank and Treasury have presented the post-apartheid period as one of great success in keeping international investors and rating agencies largely placated, the true test is in the eating. And if we look at the conditions that the majority of South Africans live under, we see the dismal performance for what it is, and speculating about a new city in no way replaces fixing the ones we have. It is a disgrace that our townships are in such a bad way. How is it possible that after 25 years we still have these economic deserts where people are forced to protest for basic services?
Part of it is due to the Jacob Zuma years. But much more fundamentally the economy has not grown the way we would have hoped in 1994. The development of corrupt patronage networks and the ability for state capture to become so toxic and pervasive is as closely linked to the inability of policy to adequately transform the economy as it is to the simple insertion of “bad people” in government.
Several economists have been arguing for a shift in macroeconomic perspectives away from old orthodoxies and in line with international trends. The speech hints at a shift in government thinking, although it might have been more bold. The performance of the economy means we cannot continue with a rigid adherence to fiscal discipline of the kind we have been pursuing. We need to restructure and reprioritise spending in a way that stimulates the economy. The speech says positive things in this direction but bolder moves and clearer targets are needed.
There is no doubt that there are areas where spending can and should be cut but fiscal policy should not be used in a blunt way. One example is with public-sector employment. SA has a relatively low ratio of public-sector employees but a high ratio of spending on public-sector employment to GDP. The reason for this is that public-sector employment remains top heavy with an excess of highly paid administrative and managerial staff while nurses, teachers and police suffer from stagnant wages and poor administrative support. A policy that freezes hiring in the public sector will not address this and has significant knock-on effects in education, health and safety not to mention the impact on local economies where people spend their salaries.
The president has rightly acknowledged that price stability is not enough by itself to ensure economic prosperity. He rightly stressed the importance of regular meetings between the Bank and government to ensure employment and growth are included in the Bank’s strategic thinking. Ramaphosa is clearly listening to the growing view that the Bank can do more to stimulate the economy.
The debate about the Bank and economic policy is generating unnecessary tension. In a mature democracy debates should not be the source of instability or threats regarding investment. There is room for a serious discussion on these matters without name-calling and personalities. Indeed, why can other countries pursue certain policies without being chastised? Why can the US Federal Reserve have an extended mandate but not us? Why can they debate it but we can’t? Why can’t we be flexible?
The anxieties about a credit-ratings agency downgrade are real and government must pursue policies that account for this. However, this concern should not stop conversation.
The president has said that the government will provide a portion of the R230bn needed at Eskom in the coming decade. The utility is essential to the performance of the economy. And it will need serious investment to recover from its current woes. This is actually an indirect stimulus for the economy.
Many of the measures referred to by the president require fiscal loosening. The social wage is one of the seven priority areas highlighted. Within this, specific commitment around housing, the National Health Insurance (NHI) and improving public safety will all require more funding and better use of funds should they be realised.
Similarly, the focus on youth unemployment is correct. Yet this too will require public investment to resolve and it is positive that the president has committed to use the expanded public works programme and other vehicles. It is imperative that policy priorities and promises are not in contrast with the prescriptions of Treasury. Good policies will only take us so far without the resources to realise them.
Elsewhere in his speech, the president notes: “We have the opportunity to be at the forefront of green growth, of low-carbon industrialisation, of pioneering new technologies and of taking quantum leaps towards the economy of the future. We must increase the contribution of renewable and clean energy to our national energy mix and explore the potential of the hydrogen economy.”
Such a position must be at the forefront of the plans for Eskom’s future. If we are to take climate change seriously then we must put forward plans to decarbonise the economy. These plans also have the potential to allow for job creation and vast improvements in human wellbeing. SA must take international calls for a Green New Deal seriously.
The importance of capital inflows to meet our balance of payments required needs is understood. However, foreign direct investment should not be presented as the primary solution for our problems and cannot be used to plaster over deeper structural issues. The concentration in the economy, for example, is concerning. Concentration patterns have changed but have remained. The president noted industries — including car, agro-processing and others — but did not mention concentration explicitly.
The president calls for a revitalisation of our productive sectors. This is welcome. But that depends on the right character of investment. Post-apartheid SA has typically been characterised by high profits and low fixed investment especially in productive sectors of the economy like manufacturing. It is imperative that we pay attention to the nature of the investment that is announced. Public investment is key. And it is good that R100bn is set aside for infrastructure, but this can only be the beginning.
One of the most serious challenges in effecting the above is the competency and legitimacy of the state which have both been severely undermined in the decade of Zuma rule. The severity of state malfunctions at all levels of government pose a serious challenge to those advocating for the increased role of the state in the economy. These challenges cannot be ignored but they should not be an excuse to leave fixing the country to “the market”. We need both state and market.
We need a total revamp of the state system based on performance and standards. In line with checks and balances and strengthening of accountability systems. More than any other aspect, this is where bold leadership by Ramaphosa and vigilance by civil society groups is needed.
We need a whole arsenal of measures to stimulate the economy. This requires measured boldness. The key now is in the detail of policy and in implementation.
• Prof Ben Turok is the director of the Institute for African Alternatives