SA’s per capita income growth has been negative in recent years. Unless the national dialogue is upgraded to inform broad policy shifts, this will become routine.
There is remarkably little awareness that seeking to reduce SA’s unemployment or poverty when the economy has entered a period of prolonged stagnation is counter-productive. The order of priorities must be: first, create policies to sustain adequate growth; then emphasise poverty alleviation; followed by ongoing efforts to improve equality.
Taking funds from sectors of the economy which are productive and competitive and directing them to less productive and less competitive sectors leads to lower growth and capital destruction. Forcing the creation of new jobs in this way decreases the total number of sustainable jobs.
SA has a clear political imperative to reduce poverty. Those in power choose to interpret this as a mandate to transfer wealth and this leads to policies which retard growth thus undermining prospects for large-scale poverty alleviation.
The number crunchers at National Treasury and the credit agencies can see the risks of a negative downward spiral being triggered but this is lost on those who think redistribution is a substitute for growth. Meanwhile, SA’s business leaders encourage the ruling party’s worst instincts when they support initiatives which privilege redistribution ahead of inclusive growth.
To meaningfully reduce inequality requires high volume poverty alleviation maintained for decades. Done correctly, redistribution can play a useful supporting role.
For many decades, the nation’s implicit economic creed has been: The world needs SA’s minerals, therefore the country need not integrate meaningfully into the global economy. This was always wrongheaded. It became flagrantly so upon the arrival of universal suffrage with more than half the country being poor. SA simply doesn’t have the domestic purchasing power to fuel an acceptable pace of poverty alleviation.
Even before the global economy morphed into today’s Information Age, economic development relied on the efficient diffusion of skills and knowledge. The ANC’s anti-colonial biases induce resistance to such diffusion. It’s policymakers prefer to narrowly diffuse wealth. Fairness based arguments are recruited to support such interventions; yet number crunching demonstrates that such initiatives quickly become counterproductive for all but a few cronies.
Agriculture is probably the best sector to gauge SA’s dysfunctional pol-econ dialogue given the #OccupyLand issues and the prominence of food costs within low-income household budgets. While all countries struggle with farming politics, prosperity will elude emerging nations that can’t develop coherent agriculture policies.
The inherent volatility of farming output amid sharp price swings greatly restricts the appropriateness of debt funding. Similarly, government policy makers and SA’s banking executives also need to re-assess the appropriateness of debt funding for BEE deals generally.
Prolonged stagnation means debt funded BEE deals for domestically focused companies can’t be made to work in the aggregate. Such support from the banking sector will hinder poverty alleviation in the absence of sustained high growth, or unless the initiatives being funded profitably increase exports.
Farming provides upliftment escalators to very few workers. Driverless tractors are coming. Farming’s role in advancing a nation’s prosperity centres on constraining food prices.
Countries are particularly susceptible to cronyism when they combine large resource endowments with a high prevalence of subsistence farming. Thus occupying land appeals to cronies and populists. Young people however don’t aspire to working small patches of land with hand tools.
Theoretically, occupying land should work better if large farms are expropriated along with their heavy machinery. This would then be patronage; not populism. The commercial and farming expertise required to successfully operate a large farm cannot, however, be accessed through confiscation. Failure, expressed through rising hunger, would follow.
Such BEE issues are routinely mismanaged and mislabeled. Radical economic transformation of commercial farms would inflict cost not so much on the fiscus, á la SAA, but, even more than with Eskom, the effects of management shortfalls would be transmitted through rising prices, leaving the poor poorer and increasingly reliant on public support.
The central organising principle for societies had always been avoiding starvation. Then about a dozen generations ago, two countries, the Netherlands and England, were the first to eliminate famines.
The key principles employed – private property rights and capitalism – were then slowly diffused around most of the world. SA’s #OccupyLand movement rejects such foundational precepts of poverty alleviation. The last truly extreme famine was in the early 1960s when tens of millions starved to death following China’s misconceived “Great leap forward” – a set of policies also hostile to property rights and capitalism.
Criticising policy choices is easy and insufficient. SA’s dialogue around how politics and economics interact must be broadly upgraded. A large number of perceptions, and then policies, must change to avoid stagnation giving way to prolonged decline.
Published in BizNews