RAYMOND PARSONS: Why economists need to wear three hats

Often described as the “queen of social sciences”, economics tries to answer the fundamental question of how best to satisfy the unlimited wants and desires of society using limited available resources. So, whether you hear economists talk about the big, pressing issues of economic growth, employment, investment, inflation, fuel prices or interest rates — in SA and elsewhere — it all really boils down to how markets and governments allocate scarce resources in the interests of society.

In the process, the constant interplay between business activities, market dynamics and the prevailing socioeconomic landscape is the focus of rigorous economic analysis. This forms the basis of economic priorities, policies and plans — which may or may not be popular. That is why economics is often referred to as the “dismal science”.

I would like to convey my broad thoughts on the role of economists, especially in the SA context. On a lighthearted note, economists, like accountants and lawyers, are often the butt of jokes. A few examples come to mind:

• An economist is someone who works with numbers but doesn’t have the personality to be an accountant.
• Economists put decimal points into their forecasts to show that they have a sense of humour.
• An economist is someone who, when you have forgotten a telephone number, will estimate it for you.
• If you laid all economists in a row, you would not reach a conclusion.

More seriously though, we know economic thinking is derived from both theory- and practice-orientated research, and that it is applied in the crafting of solutions to various social and economic problems and opportunities. It could be said that economics is not a concrete body of truth, but rather an essential engine for the discovery of concrete truth.

Economics is also one of those disciplines where the line between national and international is extremely blurred. SA, with its small, open economy, cannot escape the effects of geopolitical tension, conflict and shifting trade alliances in different parts of the world.

To remain globally competitive in a changing world, we need to evolve new economic strategies, which economists’ wise counsel must help to navigate.

What, then, are the broader skills that economists need if they are to expand their sphere of influence at the policy-making level, while also making a difference “on the ground”?

The famous British economist John Maynard Keynes, provided an aspirational job description for a “master economist” as follows: “The master economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher — in some degree. He must understand symbols and speak in words.

“He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purpose of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.”

We may not all be “master economists”, but several of the qualities mentioned by Keynes are in keeping with the kind of attributes contemporary economists need to display today — such as reflecting on the past to navigate the future and remaining both grounded and well-rounded. But essentially I believe economists need to wear three hats.

First, they need to wear their research hat. For example, a priority area in SA for economic research is how to fast-track the implementation of policies and projects. The lack of implementation at different levels of government has been the achilles heel of SA’s economic performance for many years. What has gone wrong at local government level, for example, and what can be done to turn the situation around, need serious and urgent attention, including from researchers who can identify fresh ideas.

What a former World Bank president called the “science of deliverology” — that is, understanding how governments can meet their delivery mandates — is quite new. Research in this domain could help develop new management techniques and accountability measures which, if implemented, could hasten and improve the quality of delivery in this country — which would have an immensely positive effect.

Second, economists need to wear a “political-economy” hat. Whether we like it or not, economics and politics invariably go hand-in-hand. However, economists and politicians often talk and act at cross-purposes with  one another. This is evident the world over. Ideally, economists should provide policymakers with a dispassionate account of how various economic issues should be tackled and what policy choices are available. The advice also needs to be in accessible language that policymakers can understand.

However, while economics has become indispensable to public policy, with a seemingly endless array of tools and strategies in its arsenal, the best economic solutions are not always embraced by decisionmakers in government. Political imperatives are frequently the rocks on which the waves of good economic intentions often beat in vain. This is because politicians and policymakers have many more issues to consider than those that fit neatly within the parameters of economics.

Politicians may frequently seek economists’ “advice” merely to support their own preconceived notions, often not absorbing what economists know or believe. Politicians are also preoccupied with elections and votes, with ideological commitments often superseding practical insights and solutions.

Third, economists need to wear their “real world” hat. It is an unfortunate reality that many economists, while conveying compelling arguments and dispensing good technical advice, overlook the real human costs and trade-offs that accompany such advice. This helps explain why some countries celebrate their strong growth rates but fail to act on obvious shortcomings in their education, health or transport sectors.

The “real world” is where businesses operate, where communities interact, and where individuals live their lives. While data and rigorous analysis and debate are often regarded as the cornerstones of the economics profession, simpler measures of economic welfare — which everyone understands — are also whether roads are maintained, traffic lights work, and a neighbourhood or town is attractive and safe. The quality of economic growth is therefore as important as its overall rate.

As suggested by Keynes, economists often have to be chameleons — capable of seeing the big picture and contributing to high-level strategies while being aware of, and concerned about, day-to-day issues that define the outcomes.

In recent months, since the formation of the government of national unity (GNU), SA has been experiencing refreshing political and economic tailwinds. The GNU is strongly committed to far higher, inclusive growth and job creation. In a positive message delivered recently, the SA Reserve Bank projected a modest growth rate of 2% by 2027, provided a number of key conditions are met.

The advent of the GNU has therefore created a “feel good” factor that is giving momentum to the economic recovery that is presently under way. Such a favourable confluence of events in SA may not present itself again to key stakeholders such as business and labour, so they must capitalise on it now. And to retain this positive trajectory the GNU needs to stay on the right economic path. In a nutshell, to build a bigger, stronger and better economy, SA needs to engage in “good economics” for (still) challenging times. There is now space to do so.

We must not forget that political parties and leaders change over time; insights and perceptions change; and new and better knowledge emerges — often as a result of ongoing, insightful research, combined with advocacy and lobbying. Clearly, judgments about priorities and the trade-offs linked to various decisions are far from static. Also, the expanded role of the business sector requires a new and realistic understanding of the risks and opportunities embedded in SA’s shifting political economy, which is one of the keys to renewed business confidence.

Government institutions and semi-government institutions like the National Treasury, the Presidential Economic Advisory Council and the Reserve Bank are all now seized with doing good official and relevant research on policy issues and choices. But the independent research and thought leadership provided by business schools and related faculties are also valuable resources that need to be tapped as high-level decisions are taken in the interests of the country. Independent research is a necessary corrective.

If we can get the politics and economics right, and if business and labour have proper seats at the table, SA will undoubtedly be able to break out of its present “low-growth trap”. What really matters now for the GNU, as a socially responsive government, is that its constituents — society at large — should now see the “lights on the hill”. We are at a propitious moment to do so.

There nonetheless remain big challenges and we must accept there will be no utopias to order for SA. Political will, leadership and accountability will still be needed in the country to underpin and drive a strong economic and governance reform agenda. Importantly, in our mixed economy the private sector needs political and administrative governance that is efficient, stable and consistent.

In the final analysis, shared economic prosperity remains the only secure guarantee of a democratic sociopolitical order in SA, if that is what we want. The search for a better tomorrow — sometimes called the “procreant urge of the world” — is at the heart of the economic and moral challenge facing the country. Our institutions and processes in future must cater for this outcome. We must have those “lights on the hill”. 

• Parsons is professor at the North-West University Business School. This is an edited version of his acceptance speech on receipt of an honorary doctorate from the university earlier this month.