Most growth transitions are politically determined. In this context, finance minister Tito Mboweni and the Treasury have taken the lead with the release of their latest discussion document. The challenge now lies in implementation.

Similarly, the recent formation of an economic advisory council must be welcomed since it is equipped with breadth and depth of expertise. However, it cannot be a substitute for political will and leadership in making the appropriate choices and trade-offs in executing economic policy — actions, after all, speak louder than words.

It is rare for politicians to achieve consensus, and there will be strong disagreement over any growth strategy. However, skilful navigation through the various vested interests, and building a new coalition for inclusive growth is what the conjuncture requires. We can ill afford further stall-speed growth with years of declining per-capita income. As a nation, we are getting poorer.

The Treasury document is a welcome departure from the policy paralysis that confronts our country. There is no such thing as an optimal economic policy for an idealised economy, nor is there one exclusive model of the economy. In this sense, the document is pragmatic. Hopefully it will lay the basis for further reforms.

Rapid and sustained growth will not happen automatically; it will require a strong will and commitment to realising that objective

Because SA’s economic predicament is rapidly deteriorating, there is a marked structural shift in its growth prospects. Due to the global financial crisis of 2008, our trend equilibrium growth has changed from a 3% to a 1% economy. There is a shift away from the production possibility frontier. This means its growth capacity is diminishing. The key challenge we face is to raise the growth rate of the economy, but how?

The issue is why in certain political contexts growth-enhancing institutions emerge, and why we see the persistence of growth-impeding economic institutions in other developing contexts, for long periods — why do growth accelerations and decelerations occur? This requires an understanding of the political dynamics and the transition from one growth regime to another. What is the role of political factors in the establishment and change of economic institutions, and how does this affect economic growth?

A growth strategy is an important first step in deciding how we move from where we are to a quantitatively and qualitatively higher level. It is about taking the country forward and what instruments are at our disposal to do so. We must distinguish between what can be done in the short and long term. Rapid and sustained growth will not happen automatically; it will require a strong will and commitment. The key idea is to do whatever is feasible in the time available. This means we need to adopt a more pragmatic approach to economic policy.

The Treasury document largely focuses on micro interventions that, if implemented, would raise the growth rate and bridge the lack of competitiveness in SA. The challenge lies in implementation. The document might not be entirely new, but it is a step forward. However, it does not say much about the current macroeconomic challenges. To accelerate growth, the micro and macro have to be integrated.

China and India

The growth challenge lies in tackling the disequilibrium in our political economy. This means switching from one growth regime to another. This may not simply happen through the conventional approaches. We need to adopt an experimentalist approach, as well as what Dani Rodrik (one of the pre-eminent scholars appointed to the economic advisory council) calls working on second-best solutions for the economy — how do we move from stagnation to growth?

This can be illustrated with a few case studies from China and India that show we can achieve growth acceleration through different and experimentalist methods. One is a democracy and the other is authoritarian.

According to Rodrik, economists are not trained to think about the way politics operates, much of which has to do with strategy in forming coalitions and alliances, making promises or threats, and restricting or expanding the menu of options. He argues that new or more innovative policies can break vested interests and makes the case for “ideas as political innovation”, which can relax political constraints. To illustrate this, Rodrik draws on real-world examples that could hold lessons for SA.

India’s growth accelerated in the early 1980s, the key change being the attitude of the government

In the 1970s China was still a centrally planned economy in which administered prices and transfers favoured groups that were close to the Communist Party and explained why efficiency reforms were not undertaken. The Chinese government found a shortcut in the late 1970s. It introduced policy innovations such as two-track pricing and special economic zones (SEZs). In the case of agricultural reform, instead of abolishing centrally planned grain deliveries at fixed prices, it simply imposed a market system above the centralised system. Once the planned deliveries were made at state-set prices, farmers were free to sell any additional grain at the prevailing market price.

SEZs had the same effect. Instead of liberalising the trade regime in the conventional way, which would have had an adverse effect on state enterprises, China allowed companies in SEZs to operate under near-free trade rules. This allowed China to pave its way into the global economy while protecting employment and rents in the state sector, which strengthened rather than weakened the Chinese Communist Party. In our case it could strengthen the reformers in the governing party. As implemented in SA, SEZs have not had the desired result.

Change in attitude

The case of India provides an interesting case study of what inhibits economic growth. Between 1947 and 1980 India grew at 2% annually. This low growth rate became known as Hindu growth. India’s growth accelerated in the early 1980s, the key change being the attitude of the government. This entailed eliminating the License Raj system, which meant reducing some business taxes and easing access to imported inputs. These were small adjustments, but they had a big outcome: India doubled its growth rate to 4% in the 1980s.

Yet India was still plagued with bureaucratic inefficiency, corruption and poor infrastructure. If a country is performing below its potential, it does not take much to unlock inefficiency and boost growth. Small changes can produce big outcomes.

There are many areas in SA in which reforms can take place that will signal a change in attitude towards the private sector and generate a dynamic relationship to trigger growth.

While we are clearly not China or India, what both countries illustrate is that we don’t have to live with low and decelerating growth. We should be paying more attention to new ideas, technology and innovation to break the paralysis.

In a democracy, debate and consultation are always important, but equally we do not have the luxury of endless discussion. We must get real. Debate must be with purpose, to enhance inclusive economic growth. This is not the sole responsibility of the government but equally that of other role players.

• Cassim, a former adviser to the finance ministry, is an economist at the Banking Association SA.

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