Poor policy slows SA's growth

James Carvelle, Bill Clinton’s 1992 campaign strategist, coined a phrase that remains pertinent the world over, especially in South Africa, when he said “the economy, stupid”. As we now paraphrase Carvelle’s phrase, “it is [indeed] the economy, stupid”. In the case of South Africa, I insist that it is both the economy, and more fundamentally, policy, stupid.

The recently released census results confirm that South Africa’s social and economic transformation has been slow. The economy is stuck in low gear. Poverty and inequality remain disturbingly prevalent, especially for a country with a high per capita income. I believe the cause is to be found in poor policy and delayed policy reforms.
By policy, I mean the clarity of strategic intent of the government. Policy involves hard choices: it is a combination of instruments, which may be contradictory, used to pursue lasting socioeconomic transformation. Policy is the art of negotiating trade-offs and contradictions.

Ideally, policy should be disentangled from politics, and it should always take precedence: when politics flounders, as it often does, policy should still stand the test of time. Policy clarity would ensure that the bureaucracy understands the government’s strategic intent. It should be able to pursue that strategic intent even in the midst of political pollution.

Policy that is of critical importance for a country like SA should be concerned with social and economic development — and the interface between them. The transformation of societies requires robust social and economic policies that talk to each other. Social policy in particular is about advancing social wellbeing, along the lines of addressing what Amartya Sen, who was awarded the 1998 Nobel in economic sciences, terms undoing “unfreedoms” such as poverty, lack of access to social services, and so forth.

South Africa’s economy has, since 1994, performed below its potential. Thankfully, it stabilised in the mid-1990s, after its worst performance during the dying years of apartheid. Economic policy focused on macroeconomic stabilisation, through the necessary but controversial policy reforms akin to the Washington Consensus. The frequency and intensity of public protests and wildcat strikes lately show that social welfare, social institutions and social relations remain poorly transformed — these are important aspects of social policy according to Thandika Mkandawire, who is the chair of African development in London School of Economics.

In the 2000s, economic policy turned again to redistribution with the accelerated and shared growth initiative of South Africa, but that was left hanging after about three years and a new “policy” was introduced: the new growth path (NGP). Although the economic analysis contained in NGP is robust, the policy is not clear. Or, rather, its infrastructure development programme is not really policy. It is still unclear where the money to finance it will come from in the context of a weak global economy and worsening economic performance in South Africa. Besides, the main policy instrument proposed in the NGP to address unemployment — that wage settlements should be moderated — misses the point: reducing labour costs does not automatically increase employment. There are numerous determinants of employment that this narrow policy view ignores.

Then we have the more comprehensive and policy-oriented national development plan from the high-powered national planning commission. The NPC’s 2030 vision offers us a chance to “write our future”, as the commission puts it. It appeals for leadership, unity and cohesion for the plan to be implemented successfully. Yet it also highlights “policy instability” as an issue that requires attention.

We face a host of urgent social and economic issues. In many analyses, topping the list are unemployment (especially youth unemployment), poverty and inequality, education and skills. These challenges are a function of poor policy and weak conceptual clarity. In other words, the so-called poor quality of education is related to policy, as is high unemployment. Often it is argued that the economy requires certain skills and that those (high-level) skills are scarce. Policy could ensure that the skills needed by the economy are created: graduates, who surely can learn some skills, can get in-service training as an example.

It is hard to concur with the argument that mainly poor education and lack of skills is to blame for high youth unemployment. This view avoids confronting the real issue: the demand side of the labour market. It seems to me that almost all countries view their education systems as weak, but most countries do not have our painfully high unemployment rates. Besides, the education system in South Africa has always been poor: Bantu education was, arguably, worse than the post-apartheid education system, but the graduates of the 1990s, who imbibed Bantu education, managed to find jobs.

Because of weak policy thinking, we end up with targets that are clearly unachievable. It appears obvious that the jobs promised by the new growth path are a pipe dream. Strangely, the NPC falls into the same trap: it is hard to imagine, given unclear economic policy, that the economy can create six million jobs between 2020 and 2030 to reach full employment by 2030, as the NPC promises.

The envisaged national consensus, as important as it is, cannot miraculously create jobs. Policy creates jobs by ensuring an economy that performs at the level it should. The Achilles heel of our economy, compounding the policy challenge, is this notion of a “mixed economy”, which tries to balance a free market and state intervention. But it is not helpful to proclaim this: all economies, the world over, are effectively mixed economies. The real issue is the policy mix that will achieve sustainable economic growth and redistribution.

It seems the government has flip-flopped on the clear boundaries between what constitutes a “mixed economy”, and what mix is right for us. Perhaps we should go back to the analysis contained in the ANC’s 1998 discussion document “State, Property Relations and Social Transformation” because there has been no better clarification from the governing party since.

Fundamentally, the role of the state in the economy has to be clarified. China, Brazil and India are all mixed economies, but they are very different kinds of mixed economies. These countries are performing far better than South Africa in most respects. It seems they have a vision for their respective economies and have decided on an economic model that ensures a vision is attained. South Africa, through our government and through the ANC as the governing party, tends to get lost in the detail. We too often try to do everything all at once. We need to refine and clarify both our social and economic policy.

We could aim squarely at an economy that grows substantially, redistributes wealth and creates jobs. Such an economy would require a robust industrial policy, an economic empowerment policy that works, an effective policy for the development of small and medium enterprises, a trade policy that addresses the unintended consequences of international trade, tax and fiscal policies that promote redistribution, monetary policy that does not punish the emerging black middle class, and other microeconomic policy reforms.

With regard to the labour market, this might mean a change in government’s attitude to the informal economy: South Africa has a strangely small informal sector, or it is underreported and undervalued, but in many developing countries the informal economy is a temporary cushion for many people and can become a bridge to the formal economy. The government barely addresses this possibility.

We must invest more in policy thinking: ideas matter a lot in the transformation of societies. Without policy and conceptual clarity we end up with the Marikana tragedy — and there may be worse to come. The recent three-way economic discussion between the government, the private sector and the trade unions is a step in the right direction, but it will bear fruit only if it wrestles with the complex question of a vision for our economy.

It is not enough to tinker with policy challenges at the margins. To take the South African economy to the next level, substantial policy reforms are necessary. The “capable state” which the NPC yearns for or the “developmental state” that the ruling party is pursuing cannot achieve much without policy and conceptual clarity. “Writing our future” could prove futile if we do not have the correct policies to achieve the future we want to write.
Needless to say, the argument that policy is at the centre of development dilemmas confronting post-apartheid SA does not imply, or it does not intend to imply, that other challenges are not an issue.