Which party deserves your vote? It really is about the economy
The key question facing voters in the May 8 election is which party has the best policies to rescue the economy. Unfortunately, the options are uninspiring: the EFF’s fantasies spell ruin; the ZACP’s bold notions ignore reality; the DA has the best ideas but they’re fuzzy; and the ANC wants to implement the same old policies with more zeal
The economic policy thrust of the three main parties (the ANC, DA and EFF) differs fundamentally, but like the disruptive new player — the Capitalist Party of SA (ZACP), whose logo is a purple cow — all promise more jobs, faster growth and a better life for all.
The big question is whether any party’s economic policy manifesto contains what is needed to get SA out of its low-growth trap and achieve sustainable, rapid growth.
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SA has woefully underperformed over the past decade compared with most other upper middle-income countries, having grown by only 1.7% on average annually. In 2002, per capita income was just 5% below the average of its peer group of countries, but by 2013 it had slipped to almost 20% below the average.
SA has also regressed when measured against the goals of the National Development Plan (NDP). The NDP’s growth target of 5% a year, set in 2012, would have resulted in the creation of 500,000 jobs a year.
However, employment has grown at only 30%-40% of the targets. Poverty and inequality remain dire, and rapid deindustrialisation has set in.
According to the World Bank, if SA fails to shift from its current policy stance — or address state incapacity, corruption and fiscal sustainability — growth will not rise much above 1.5% over the long term and unemployment will remain stuck at around 27%. The implications for fiscal and social stability are alarming.
The litmus test for this election is, therefore, whether any of the parties are willing to break the mould and effect a wholesale mindset shift in the way SA views the economy. The two parties that best pass this test are the EFF and the ZACP — at opposite ends of the spectrum.
However, the EFF’s radical, populist policies could trigger a Zimbabwe-and Venezuela-like disaster, while the ZACP’s singular focus on economic growth and comparative lack of concern with inequality will probably render it politically unacceptable to the majority of the electorate.
The EFF’s approach is unashamedly statist and authoritarian. It would vastly expand the public sector and the role of state-owned enterprises (SOEs); nationalise all strategic economic sectors without compensation; instruct asset managers where to invest and big business what to build; and leverage state procurement to juice the economy. The words "compel", "expropriate" and "enforce" pepper the EFF’s manifesto.
The ZACP is hooked on the word "freedom". It advocates the classical liberal values of individual liberty (freedom of expression, religion, language, association) and pure free markets as opposed to the crony capitalism, price collusion and "tenderpreneurship" that have gripped SA.
But it will brook little or no dilution of these rights. For instance, it stands for "absolute" property rights in which expropriation without compensation is blatant theft. It would not criminalise a Penny Sparrow (whose racist outburst landed her with a R150,000 fine) because that would be a denial of "absolute" freedom of expression.
The ZACP believes that if state involvement in the economy is reduced to an absolute minimum, and fully free markets are allowed to function with economic growth and efficiency trumping other considerations, the energies of the private sector would be unleashed and SA’s growth rate would soar, taking care of its social problems.
But though growth may be robust in a liberal state, inequality is high. Such states spend less on social goods and therefore tax less, but people are largely responsible for their own health care and education costs. This would be a problem in a country like SA where unemployment is structural.
So even when growth averaged 5% for five years (before the 2007 global financial crisis), unemployment never dipped below 20%. This was largely due to a lack of the right skills among most of the unemployed.
All this suggests that a supportive (if not interventionist) government will long remain a prerequisite for social stability in SA.
The two main parties — the ANC and the DA — are closer to each other in the middle of the spectrum. They agree that the economy needs to grow rapidly and become more inclusive to reduce SA’s debilitating levels of poverty and inequality.
The essential difference between them lies in their approach to the role of the state in achieving rapid growth. The ANC favours an interventionist, developmental state as the way to grow the economy — an approach that has caused public spending (mostly on consumption, including the wage bill) to soar from around 22% of GDP in the early 2000s to more than 27% today.
The ruling party intends to fully capacitate the state, strengthen SOEs and extend state ownership into pharmaceuticals, renewable energy and banking.
The DA would move in the opposite direction. It would minimise the state’s role, which it believes is to create fertile conditions for the private sector to drive economic growth because only a thriving economy can create jobs and produce tax revenue on the scale required to end poverty.
To achieve a thriving economy requires "embracing the enormous transformative power of the market economy, private enterprise and competition", says DA metro campaign manager Geordin Hill-Lewis. "And importantly, not trying to quash private enterprise ... with stifling red tape."
The DA believes the state’s main role is to provide the infrastructure to support economic activity, a stable macroeconomic and coherent policy environment, and secure private property rights.
In contrast, where the ANC manifesto does mention business (other than township or village enterprises), it is about the need to smash monopolies and eliminate tax evasion — as if business is the enemy and not a key partner in the country’s development.
There is no acknowledgment by the ANC that any strengthening of public sector delivery should be designed to support the private sector or that business creates the bulk of jobs and growth in the economy.
In the ANC’s manifesto, the words "strengthen", "accelerate" and "scale up" occur repeatedly. The emphasis is on implementing existing policy better, rather than on introducing new policies or shifting direction.
In this respect, the manifesto completely misses the shift of focus that President Cyril Ramaphosa spent much of last year trying to articulate.
Through two high-profile summits — on jobs and investment — Ramaphosa’s administration worked hard to build bridges to business.
It has repeatedly said the best way to overcome SA’s economic challenges is in partnership with the private sector.
If anything, the manifesto represents a populist regression by the ANC. The two best examples of this are its undertaking to dilute the Reserve Bank’s inflation-targeting mandate, and to institute prescribed asset requirements. Both policies would ruin confidence, investment and growth.
Ramaphosa has tried to backtrack, saying the Bank’s independence is "sacrosanct" and nobody should be alarmed because the manifesto is just an expression of aspirations, not a change in policy.
But to the extent that the manifesto reflects the slowly tightening expectations of the ANC’s grassroots and what they believe the government should prioritise, it should ring warning bells about the direction in which the government might be heading.
Instead, the DA would improve the operating environment for small firms by ensuring government departments pay them in 21 days, not the current 30. It would also exempt SMEs from most labour and employment equity legislation, reduce red tape and return to sector-specific minimum wages with a new minimum floor of R1,780 a month. "We need a recalibration of the power relationship between big unions and small businesses," says Hill-Lewis. "Shop-floor strike ballots should be mandatory and bargaining council agreements should not be imposed on small businesses which are not represented. These two reforms alone would go a long way in forcing the two towards a better working relationship."
Wits economics lecturer Lumkile Mondi chaired a recent panel discussion organised by the Small Business Institute in which the main parties were invited to present their policies for supporting the SME sector.
In Mondi’s view, the ANC "disadvantaged itself" by being unable to say what it would do differently, while the EFF offered no policies of its own and simply claimed it would do a better job of implementing the ANC’s if it were in power.
The DA had "a very good story to tell", however, based on its approach of boosting SMEs through deregulation.
The party has saved business R1bn in compliance costs through red-tape reduction in the Western Cape.
More subtle than their differing stance on the role of the state, are the ANC’s and the DA’s differing approaches to reducing inequality.
In a nutshell, the ANC sees SA’s chief inequality as being between blacks and whites while the DA (though it also supports race-based affirmative action) sees the real inequality as being between those with jobs (insiders) and those without (outsiders).
"In effect there are still two SAs 25 years into democracy," states the DA manifesto. "One where there are the skills and resources to access economic and other opportunities, and another SA where most citizens find themselves excluded with no hope of accessing life-changing opportunities. The failure to bring these South Africans back into the centre of our economy and society has reached a crisis point," it adds. "Our country has not faced a period of more racially divisive rhetoric and tension since the dawn of our democracy.
"While much of this rhetoric stems from opportunistic political parties mobilising people on the basis of race, it must also be recognised that it is because many millions of South Africans remain on the periphery of our society, where apartheid forced them or their parents, that this rhetoric takes hold."
Accordingly, the DA advocates a programme of economic redress, but rejects the ANC’s approach to BEE, which "has only served to enrich a politically connected elite and to dampen economic growth at the cost of job creation".
The DA believes the best form of empowerment is for someone to get their foot on the job ladder. So it would simplify and reorientate BEE to encourage job creation, education and the upskilling of workers, the development of new black entrepreneurs and employee-ownership schemes.
The ANC plans to deepen existing BEE policies and broaden their base by, among other things, legislating the rules around employee-ownership schemes.
"A core difference is the ANC sees transformation as happening through increased regulation, taxation and redistribution; the DA sees it as happening through expanded employment, but [without] opposing our large, redistributive state," says Ann Bernstein, executive director of the Centre for Development & Enterprise (CDE).
Though the manifestos of the DA and the ANC appear similar (both want transformation and growth and embrace a large welfare state), to Bernstein the ANC’s manifesto signals a more interventionist, statist policy direction and the DA’s a strong opposition to it.
Bernstein believes the DA — with its focus on providing a job in every household, protecting property rights, embracing the private sector, and its proven capacity to govern more cleanly and competently than the ANC — comes closest to offering a new approach to growing the economy
However, University of Johannesburg economics professor Fiona Tregenna feels the DA is "caught between the limitations of its traditional free-market ideological orientation, while trying desperately to broaden its appeal among different strata of voters".
ZACP founder and veteran journalist Kanthan Pillay is scathing about how far the official opposition has drifted from its original purpose, saying: "We refer to [the DA] as ‘ANC lite’. Their policy now is: look, vote for us, we’re less corrupt ... Vote for us, we have blacks too.’ It’s absurd."
The ZACP has provided next to nothing in the way of a manifesto. Bernstein dismisses the fledgling capitalist party as "a collection of anarcho-libertarian instincts that are better described as adolescent than political".
She gives the EFF’s manifesto equally short shrift: "It’s basically a genre of fantasy: its assumptions and recommendations are so off the charts that it’s not really possible to engage with them."
Tregenna regards the EFF manifesto as "a series of big promises which the party knows it will not be in a position to deliver on. There are a few interesting ideas in the mix, but many are just bizarre, blatantly populist with a lot of contradictions."
On the ANC, Bernstein highlights the disconnect between the many crises it has created for the country and a manifesto which offers more of the same. There is no acknowledgment of the "spectacular failure" of state-led development. "Instead of helping to develop the country, in the past nine years the state has stolen from the poor and destroyed institutions," says Bernstein.
Moreover, the state has proved to be "terrible" at conceiving and executing business strategies for the SOEs. With so little self-awareness of these weaknesses, it’s hard to see how they will be addressed.
The missing actor is organised business. "Without this voice influencing all major political parties," Bernstein says, "there is a big absence in SA politics and it shows in the content of the party’s proposals on growth."
Sanlam Investments economist Arthur Kamp acknowledges that though the ANC and DA manifestos differ in important respects, their underlying thrust is similar.
Both recognise the critical elements required to lift growth, starting with placing the fiscus on a sustainable path, combating corruption, reducing infrastructure bottlenecks, promoting investment and developing skills. But how either party is going to do all the things they promise from SA’s current position is far from clear.
"Because SA’s problems of inequality in education, resources, access to jobs and income have not been solved, policy is becoming increasingly reactive in response to an increasingly impatient electorate," says Kamp. "This is reflected in higher regulatory requirements, while requiring more and more resources to implement."
To make resources available, the winner of the 2019 election will need to make a sharp cut in the state’s wage bill. The current government hasn’t been able to achieve this and it’s not clear the DA could either.
Kamp fears the inefficiencies in the system, the skills backlog, lack of resources and growing demands on expenditure will make it very difficult to achieve the goals of either the ANC or DA in the next few years.
Tregenna doesn’t think any of the main manifestos, including the ANC’s, would ensure SA has a sustainable 5% growth rate.
"If we are serious about really addressing the triple challenges of poverty, inequality and unemployment, it can’t be business as usual," she says. "Continuing with incremental changes to current policies would obviously not yield the dramatic changes in outcomes that are needed."
Institute of Race Relations CEO Frans Cronje also finds little in the main manifestos that could break the back of unemployment. He believes this would require, among other things, disposing of SOEs, securing property rights, wholesale labour market deregulation to price poor people into jobs, and replacing race-based empowerment with a policy based on socioeconomic disadvantage.
"ANC policy is essentially statist, interventionist and hostile to private sector investment," he says. "EFF policy would quickly precipitate a Venezuelan–style catastrophe. DA policy has traditionally been a lot better, especially in property rights protections and labour market regulation, but its traditional pragmatism is wavering as it flirts with the racial-nationalist basis of ANC and EFF policy."
Some of the smaller parties have much better economic policy suggestions, he feels, citing the ZACP. "This doubtless reflects the fact that its leadership is not made up of career politicians but a group of entrepreneurs who know what it takes to be competitive."
The ZACP considers its leaders to be "positive disrupters" (some would say, "dilettantes") and offers 10 suitably disruptive ("gimmicky"?) ways to solve some of SA’s problems, from cash-in-transit heists to the rape epidemic. Pillay concedes these "short-term, low-cost fixes" are not panaceas or complete public-policy frameworks.
BEST NEW IDEA:
The ZACP visa acceptance proposal
The Capitalist Party of SA’s proposal is that if a traveller already has a visa from the UK, the US or the 26 Schengen states they will be allowed into SA without having to apply for an SA visa, since the security requirements of these countries are more stringent than SA’s.
The new party reasons that though SA will sacrifice its visa fee, it will achieve a net gain from the increase in the number of wealthy tourists who might otherwise not have bothered to come to SA.
Mexico has shown this approach can work. In 2010, it decided to accept travellers with US visas on the basis that since it is one of the hardest visas to get, the security checks carried out by the US should more than suffice. In the following year, Mexico accepted 1.5-million visitors of other nationalities who entered on US visas.
Olivier Ponti, vice-president of international travel data analytics firm ForwardKeys, says visa facilitation is the best thing a country can do to corner a share of the rapidly growing market of Chinese travellers, only 1% of whom currently visit Africa. His research shows that Chinese tourist arrivals increased by 400% in Morocco and by 214% in Tunisia in the six months after visas were abolished, by 85% when Angola simplified its visa procedure, and by 17% when Ethiopia introduced e-visas.
The party’s central economic policy idea is a negative income tax (NIT) system in which anyone earning under the R6,500 monthly personal income tax threshold would qualify for a monthly grant. This grant would be the difference between their salary and R6,500 divided by two. So, someone earning R3,500 would receive a grant of R1,500 and take home R5,000 each month.
The advantage is that instead of low-cost workers being guaranteed a national minimum wage (NMW) of R3,400 a month paid by the employer, their salaries would be topped up by the taxpayer. This would shift a big burden off business, remove the disincentive to hire created by the NMW and reduce the disincentive to find work associated with welfare grants.
To fund it, the ZACP would reduce the size of the public service (which currently absorbs R34 out of every R100 raised in taxes) and divert the savings to the NIT system. "As economic growth picks up, we’d reduce taxation concomitantly."
Pillay admits that while social grants provide an essential safety net and cannot be summarily ripped out, the current system whereby 7.5-million taxpayers fund 14-million people on welfare is unsustainable.
"The business model has to change drastically," says Pillay. "There are no data-based projections for the size of the population SA can expect to be needing to fund in 10 years’ time and how we would pay for those. It’s a time bomb."
What it means
None of the three main parties offers SA a sure way to achieve rapid, sustainable growth
This doesn’t mean SA is doomed or that there is no point in voting, only that the project to rehabilitate the country is likely to be a long, tortuous affair. Bold economic reforms and decisive policy action would speed it up; a strong fightback from the ANC’s rent-extraction faction would slow it down.
If, as Bill Clinton famously claimed "it’s the economy, stupid", then next week’s election provides no single party that you could safely set your stall by. The EFF provides a model for economic ruin, à la Venezuela. The ANC has shown not only that it is incapable of fulfilling its better-economy promises, but Ramaphosa, despite his noble instincts, has yet to demonstrate he has any control of the party’s most ruinous faction. In the final analysis, the DA’s policies remain the closest we have to a rational economic model, even if the party’s bumbling schizophrenia will be off-putting to voters.
The DA is the FM’s choice, but as Clinton put it, you need to decide what country you want to live in, when you put your "x" in a box next week.