Economic Policy: Can Retrospect Inform the Prospect?

Once again South Africa is at a point where a political party needs to articulate, and then implement, a coherent and sustainable economic policy. As always, in such times, much recourse is had to a retrospective view of the preceding policies and their successes and failures. All too often such a retrospective narrative is shaped by the political needs of the present.

All too often such political needs are, in reality, mere shadow boxing within the fragmented identities of political parties or between each other. However, this can be dangerous and inimical to effective and analytically informed economic policy. Under such miasmas real economies can collapse and citizens can suffer – this is an extreme risk in the present conjuncture!

An economic policy is only as good as the coherence and national capacity of the political party that seeks to implement that policy in the interests of all citizens, not only its own membership or leadership. In turn a political party is only as strong as its ability to understand the needs of the majority of citizens and to evolve an analytically sound and implementable socio-economic programme.

At present the ANC is best placed to undertake such an analytically sound policy as a result of its origins and the fundamental principles that made it a real liberation movement. However, there is nothing automatic about this – in fact there is equally little doubt that the ANC was within a hairsbreadth of destroying itself in December 2017. We are moving slowly out of the hairsbreadth zone and time is passing. We need a new platform to propel that movement and it must not be the radical, but content void, slogans of the last ten years.

To contribute to this process let us look at the retrospect that seems to inform much of the purported radicalism being espoused. Then let us attempt a more analytical assessment and proffer some thoughts, based on this, that will influence our prospect for the better. This is very much a ‘heads of argument’ exercise as these are complex issues that need to be fully articulated and explicated.

A narrative, or in some ways a legend, developed around the failures of economic policy between 1994 and 2007. This was that it had essentially fallen into a market orientated neo-liberal framework that benefitted only white monopoly capital. This is to state the narrative in its crudest form, but the elements are fairly consistently stated. Such a failure is variously attributed to a capitalist conspiracy, class collusion, ideologically corrupted leaders or a mixture of all these. There are, of course, more substantive critiques around jobless growth and the persistence of poverty and inequality that we will address more seriously in what follows.

The narrative was, however, convenient as it allowed an essentially populist mobilisation across elements of the left; aspirant bourgeois and those, embedded within these strata, who felt that they had limited the room for redress and personal gain by adopting a Constitutional State. The fact that inequality retained a predominately racial form created fertile ground for those who saw white privilege as being overly protected – the mammoth task of nation building that was envisaged in the Constitutional order came under increasing attack.

The radicalism and the radical economic transformation called for served, in reality, to hide a decade of policy stagnation – both in formulation and implementation – and a serious weakening of the state structures. The weakening of the state opened the way for those who could then divert state resources to their private needs rather than the public purpose for which it was intended. The dying kick of this radicalism was land expropriation without compensation. A radical slogan that clouds the underlying fundamentals of the need to carry out a real land reform that addresses the national question, allows for real asset acquisition for black persons and brings an end to the economic dormancy enforced upon black areas of settlement by colonialism and Apartheid!

The dangers of a weakened state, hidden under populist rhetoric, manifested themselves clearly enough to invoke increasing analysis of this situation and a mobilisation against it. We need to analyse the actual political economy more carefully, if we are to move forward to the benefit of the economy.

In essence, those who argue that the economic policies that effected the democratic transition were too cautious, and therefore neo-liberal, severely underestimate or even ignore the precariousness of the socio-economic situation at that time. The structural inequality between black and white was acute; the formal economy was highly protected, inefficient and many entire sectors were on the verge of collapse. Globalisation was on the rise and capital would flee manifestly anti-market economic policy. Endemic violence, sucking in whole communities, was dangerously on the rise. In short a serious collapse of the economy and social cohesion was a very realistic prospect. To ignore this reality is merely to wish away reality in favour of idealistic theory.

The first and foremost task was therefore to ensure stabilisation of the political economy. However, this had to be done whilst reintroducing the South African economy into the growing global economy. Space precludes an examination of this complex policy package that had evolved out of more than a decade of preparatory and participative policy formulation.

However, by 2004 the stabilisation process had succeeded at a macro level and fiscal stabilisation had generated a primary surplus opening the way for increased capital expenditure. In the main industrialisation had been stabilised, but only to the extent of preventing the total collapse of key manufacturing sectors like auto, clothing and textile, the engineering sector and construction. However, the move toward competition in global markets did lead to a slow growth of employment, compounded by significant decline in the manufacturing sector. The key state owned enterprises were also being stabilised and could enter the capital markets to fund infrastructure. South Africa was a key player in the rising economic fortunes of Africa.

By 2004 economic policy was beginning to focus on the micro dimensions crucial to addressing poverty and inequality. This was a focus on local government, communities and rural areas. There was a realisation that capacity was weakest where it was needed most – at the interface with poor communities!

The factionalism and serious political manoeuvring, ushered in with the Zuma era after 2007, stopped this fundamental change in direction and replaced it with rhetoric. More seriously the era undermined fiscal stability; weakened all levels of the state; gutted the State Owned Enterprises and clearly diverted massive public resources toward private gain. There was in effect a moratorium on addressing the basic fundamental needs – growing the formal economy, poor and black settlement in urban and rural areas and the need to build the African economies.

The narrative that has been used to justify the 2007 transition offers nothing for the future since it is fundamentally flawed. An analysis of the past 20 years points clearly to what our prospect should be! The following are the ‘heads of argument’ in a ‘New Dawn’ reconstruction and development programme.

Build a strong united ANC, in effect a new ANC since much has to be remedied and unity, only with an eye to electoral success, will merely complete the work started in the Zuma era. This ANC must develop policies and programmes that will benefit all South Africans and not only those who are politically loyal or subservient. We must continue the mammoth task of nation building as envisaged in our Constitutional democracy!

Re-stabilise the formal economy – macro stability, fiscal stability and the investment environment. The R100 million investment target must be seen in this light as it will not in itself generate the required growth. The degree of industrialisation and financial capacity within the formal economy that needs to be re-stabilised are a sine qua non for the more inclusive growth path that we must build. Strengthen the state and key state institutions, particularly at local level. Stabilise the SOE, as fast as possible, so that they can play their crucial role, which is to lead an investment process to the benefit of the national economy.

Get back to the aborted task of 2007, which is to drive a new growth path. This must be based on lifting the deadweight of economic serfdom that holds the townships and former reserves in thrall. This must be done by integrating them fully into the political economy. This requires providing modern integrative infrastructure, economic opportunity, asset wealth security and full municipal, social and citizen services. Land reform will be essential in order to unlock economic potential, carry out a nation-wide agro-industrial development programme and to create a more equitable distribution of asset wealth.

The structure of our economy, and that of most developing economies in Africa at present, cannot provide sufficient employment or redress of inequality, even at relatively high growth rates. The source of growth has to be the economic rebirth of those areas held in the legacies of colonialism and Apartheid – areas that were inadequately dealt with in the stabilisation period and largely ignored in the last decade. This is the only viable growth and equity path for the South African economy.

Our industrialisation and agricultural development will be boosted by this path as we have the industrial capacity to supply the products such a path needs. Financing such a path is a relatively minor challenge. The path is sustainable for many decades to come since it is also fundamentally the path our massive continent has to walk. Stabilising the formal economy to revive its growth and the inclusion of areas of poverty in a new more egalitarian growth path are inextricably linked and one must not be pursued at the expense of the other!

Finally, we need to once again accept the fundamental fact that we are part of Africa and all our development depends on mutual growth and development in Africa. The structural eradication of the colonial and Apartheid legacies and our economic integration into Africa are the inclusive growth we must pursue.

There is a wealth of analysis available to us in all these areas to allow for the detailed articulation of analytically sound policy packages. It is the political capacity to mobilise and lead all sectors of society in the achievement of such a path that must be the starting point!

By Alec Erwin, Chairman of Ubu Investment Holdings.
He is a former Deputy Minister of Finance (1994 – 1996), Minister of Trade and Industry (1996 – 2004) and Minister of Public Enterprises (2004 – 2008).

Posted in Phambili
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