Sustained high growth requires SA to flip policy on its head
The wilfully blind government has entrenched stagnation by favouring redistribution legislation
We must follow our president’s example. Declaring a national lockdown required intellectual fortitude. Just last month President Cyril Ramaphosa was punting the fantasy of a sovereign wealth fund. We the people must also dispatch our delusions.
The country’s sovereign debt, along with much commercial and household debt, must be restructured. The good news is that sustained high growth can follow. Yet this requires broad policy reversals, whereas February’s state of the nation address and budget speech made clear that the government had ceased pursuing a high-growth path. Leaders outside the government have also not offered workable growth plans.
Before the coronavirus challenges, the national economy was gradually imploding due to policies and practices that survived last May’s election unscathed. As most South Africans survive on less than R50 per day, the governing party prioritising redistribution ahead of growth is as politically popular as it is economically destructive. But what explains why our leaders outside the government can’t produce a powerful growth plan?
While having a generous share of world-class business leaders is highly advantageous, their policy input has been unwanted. Nor can they offer packaged solutions. This is normal. The medical profession doesn’t expect surgeons to resolve a viral pandemic. Business leadership and economic policy expertise are separate disciplines.
Fixing SA’s economy requires the objective introspection of a virologist
There have been critical junctures in which our business leaders have played highly valuable roles, such as when then president Jacob Zuma appointed Des van Rooyen as finance minister. It is praiseworthy that leading CEOs offered initiatives such as their SME Fund, yet that effort was undermined by diagnostic errors.
As SA’s politics shifted dramatically in the early 1990s, the global economy pivoted no less profoundly. The trade-focused integration of rich and poor economies then pummelled global poverty. SA’s policymakers rejected such growth-based poverty thumping to favour layers of redistribution legislation, which eventually entrenched stagnation.
Surgeons cut, legislators legislate, CEOs cut deals. Fixing SA’s economy requires the objective introspection of a virologist. SA’s households can’t broadly advance independent of global developments. Our parochial policy-making must be abandoned.
Our economy and health-care system are profoundly unprepared for the coronavirus challenges. Ramaphosa’s lockdown decision was bold, justifiable and unaffordable. The private sector’s highly dispersed problem-solving capacity will need to be urgently unleashed while we simultaneously restrict the virus’s ability to spread. The government’s power-seeking instincts must be carefully calibrated to allow private enterprise to spawn creative solutions.
SA’s sophistication at commercial and capital markets economics is unaccompanied by the economic development expertise that fuels rising household prosperity through global integration. We largely missed out on the world-changing acceleration in global integration and we are woefully wrong-footed for the shifts that are taking shape. SA can only achieve sustained high growth by surging value-added exports.
As many nations now expand their governments’ economic involvement while recalibrating their global integration, SA must nimbly exploit the resulting opportunities through shrewd countersteering. What is required is a mindset conversion as dramatic as the lockdown — but in the opposite direction.
What holds us back is “wilful blindness”. A book of the same name unpacks how individuals and groups frequently choose to not see the realities that challenge their values. As a nation we bought into the false palliative of redistribution-focused economic policies. It seemed to offer justice to the previously disadvantaged and a sort of redemption for the beneficiaries of the prior regime.
“Wilful blindness” is also a legal concept. Choosing not to know is no defence. As a nation we have chosen to be ignorant of economic development basics. There is little appreciation of why chronic poverty had been retreating globally in recent decades. Or why SA’s poverty alleviation progress, which began in the 1990s, was never sustainable and has long since been reversing.
“Wilful blindness” explains why people prefer to embrace their values rather than expand their understanding. Denouncing corruption is a natural reaction. Grasping economic development drivers is a formidable undertaking.
What blood is to our bodies, money is to an economy. A follow-the-money analysis of SA’s economy shows how legislation dictates that funds flow from productive segments to those that are well positioned politically and those most marginalised. Progress is elusive as those who should be achieving sustainable middle-class status are routinely restrained by excessive reliance on overpriced debt.
What is common to those nations that are best able to navigate the global crisis are policies and practices that are mirror images of SA’s. It is as if both our population and our economy are ravaged by immune deficiencies.
At a tragic cost SA is likely to develop herd immunity to the coronavirus in the next several months. For the economy to become healthy and resilient, we must pivot policies towards the global norms that provoke broad prosperity. We can each contribute by distancing ourselves from economic development ignorance.
• Hagedorn is an independent strategy adviser.
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