Why SA’s politics pressure its policy makers from accepting this core reality.

With the exception of tourism having been prioritised, SA’s economic policies are out of synch with the most profound trends acting on the global economy.

SA’s politics reflect a belief that the country has much inherent wealth that must be redistributed.

The concept of countries having inherent wealth seemed unassailable a generation ago whereas today it is an outdated notion which tempts policy delusions, consider Venezuela and Zimbabwe.

In the later stages of the industrial era, various countries buttressed their economic prowess through developing their natural resource endowments; yet more frequently rent seeking politics undermined large middle classes developing in resource rich countries.

Until recently there was much potential for raw material shortages to become the core binding constraint acting on a national economy or even the global economy.

The potential for this to happen has rapidly plummeted to the point that this signals a fundamental 21st century departure with the two prior centuries.

OPEC’s relevancy has given way to disruptive innovations to the point that much Saudi oil is likely to join numerous coal deposits as being “stranded assets” (the rising use of this term is indicative of how the global economy is developing in very post-industrial ways).

The most profound trends that have reconceived the global economy are all opposed to resource constraints, consider:

• Low inflation has become very difficult to avoid (this is mostly a metric but, in a sense at least, it is also a force acting on the global economy as the world’s large central banks have much difficulty today spurring inflation above growth constricting levels)
• Innovative disruption forces have become ubiquitous and raw material providers have become increasingly vulnerable
• The shift from manufacturing-led to services-led growth
• Globalisation is largely about reducing costs through global integration
• (The end of the Cold War helped undermine resource provider’s geo-political relevance)
• Climate change
• The information age creates digital products and services often require little or no raw materials while advancing information driven solutions (big data, the internet of things…) which further undermine the pricing power of raw material providers

The global binding constraint on growth in the 21st century is access to adequate final demand.

Global integration is essential for lower income countries to catch up as they need to access deep consumer markets and huge pockets of savings to develop their own consumer markets while households save to accumulate assets.

The binding constraint now acting on most national economies and the global economy is final demand.

• Some countries have had a large middle class for several generations.
• So long as they can remain globally competitive in large growing sectors and avoid over indebtedness and inflation, they should be able to achieve gradual gains in, their already high, per capita income.

SA is not like this at all.

• A majority of households have always been poor.
• The “real middle class” is far smaller than what income data suggests.
• There are nearly 10 million burial policies among less than 15 million households.
• SA’s economic model has not and cannot produce a large middle class.
• Domestic spending power (final demand) is insufficient to fuel adequate growth.
• Meanwhile the global economy continues to reward rising competitiveness and integration.

This is important as the ANC doesn’t like the term competition.

SA can compete globally and flourish. It cannot succeed without competing globally but this requires regulatory reforms.

A credible opportunity path must be identified that builds on government’s new flexibility through sufficient allure to inspire precedent setting policy carve-outs.

The ANC likes tourism as an option to tap affluent foreign pocketbooks as this sector creates large numbers of jobs for low-skilled workers without needing to recalibrate the anti-competitive effects of BEE type redistribution focused policies that growing other forms of exports requires.

But tourism can’t increase enough to overcome SA’s huge poverty and unemployment challenges. The regulatory environment must adapt to tap into global final demand through exporting value-added goods and services.