07 MAY 2015 – 08:01

WE WANT to believe the xenophobic attacks and the Marikana tragedy are exceptions. But while these horrors leave us deeply troubled, a difficult reality is setting in: the element of surprise has been lost. The only people who are shocked are those farthest removed from the problem.

Public and private sector leaders are doing well, yet SA faces a nameless malaise, which is widening. Inequality and migration issues are bit players.

Fortunately, the field of development economics offers insights and points towards solutions. As a start, it provides an apt description for what ails SA.

By way of a suitably troubling comparison, as the 1980s began to unfold, some top US medical experts did not accept that there was a connection among increases in seemingly unrelated causes of death within two marginalised groups.

People were dying at soaring rates 35 years ago from diseases that were rare but not new. Inadequate responses partly reflected the fact that no one realised that the patients’ immune systems were shrivelling years after being infected. SA’s economy suffers similarly.

Early efforts to thwart the threat of HIV/AIDS in the US were constrained by two expressions toward otherness: fear of gay men and revulsion toward intravenous drug users. Fears mixed with prejudices to forestall the use of scientific tools.

SA’s economy faces threats as foreboding as HIV/AIDS with ignorance about root causes, transmission paths, delayed symptoms and prospective remedies — roughly resembling the early response to HIV/AIDS in the 1980s.

Insights from the science of development economics are smothered by ignorance, politics and prejudices. Strikes and migration violence reflect surface-level symptoms.

Uninformed factional politicking needed to be transcended for science to protect humans from HIV/AIDS — and again now for SA to avoid being engulfed in a prolonged “poverty trap”. It is dreadfully ironic that the future of the country most threatened by HIV/AIDS again faces devastation through politics blocking science.

SA’s politics are deeply at odds with economic fundamentals. This has been true for many decades. Until about a dozen generations ago nearly everyone everywhere had always been poor. Aristocrats and chiefs were far better off than peasants but their lifestyles were less comfortable than those of today’s massively larger number of middle-class households. What happened?

Scientific advances led to the extraction of metals and fossil fuels and machines replacing the physical power of humans and domesticated animals. This unlocked ever larger waves of specialisation. As markets became larger through local growth mixed with long-distance trading, greater specialisation inspired ever wider waves of rising prosperity. Thus the rise of the East followed the rise of the West….

NO one needs to tell the tens of millions of South Africans whose first and last thoughts each day are dominated by food-on-the-table issues that SA has been gripped in a poverty trap. Less obvious is how its causes and attributes reflect this country’s stark uniqueness.

SA has authored the book on mixing high highs with low lows while converting strengths to weaknesses. All the while, capital market metrics designed to price securities befuddle policy makers, and the loss of security along borders and within communities is only a down payment on the price that must be paid for decades of misguided public and private decisions.

While most national economies have overcome geography to become integrated globally, SA’s policy focus is inward and thus our economy moves more sideways than forward. Few nations dare to be so aloof.

No other country achieves top marks in financial services while flunking basic education. It is difficult to turn a major strength into a profound weakness to the extent that SA’s lenders have converted exceptional credit management expertise into a stranglehold on borrowers’ long-term prospects.

National government policies have avoided rampant inflation and excessive sovereign debt. Yet leading economies have exorcised inflation while SA’s government borrowings are now on a perilous trajectory.

Countries typically induce economic crises through inflation or asset bubbles provoking credit crunches in which banks and sometimes governments default. Unlike a poverty trap, such difficulties will eventually cascade.

Poverty traps are not subject to more timely and less harsh forms of accountability. By not borrowing for necessary infrastructure upgrades, SA’s policy makers reduced, or rather postponed, default risks and the dictates which accompany an International Monetary Fund bail-out. The day of reckoning will eventually arrive but it will be less orderly.

The trajectory of SA’s consumer purchasing power reflects exhaustion. The ability to competitively manufacture and export is eroding at an increasing rate. Eskom’s woes are today’s binding constraint but other structural failings will compete for prominence in the coming years.

SA’s poverty trap was sprung over many years. Isolation was profound during apartheid’s last decade. Since 1994, competitiveness has been sacrificed to advance redistribution rather than blending the two. It is not possible to reach towards ever rising global competitiveness standards while bowing to union pressures. Marikana’s analytical takeaway point was that union membership offers little protection when a country is caught in a poverty trap.

SA is among the most unequal countries in the world, but this misses the point. If you want to become popular within a group, figure out what is important to the people and then identify yourself with those issues.

In SA the majority responds fervently to all synonyms for fairness and jobs. The core problem is that policies that ultimately lead to more and better jobs and greater fairness undermine fairness in the near to medium term. East Asia’s phenomenal successes have been predicated on this basic insight. There have only been two successful economic development models. The rise of the West traces directly to the UK industrialisation model, while the more recent rise of East Asia reflects a series of updates to Japan’s blueprint for industrial exporting….

TWO wealthy Mideastern countries are trying to mimic key aspects of Singapore’s transport-focused version of the industrial export model. Africa still lacks a workable model and SA remains the country best positioned to deliver.

At least one modern country has triggered a poverty trap more spectacular than SA’s malaise. It is difficult to compete with the volume of pain unleashed by Chairman Mao’s policies. Nor is it easy to pivot as extraordinarily, as his successors did, by abruptly importing, adopting and marrying economic development and commercial expertise.

The number of SA’s public and private leaders who could competently lecture to graduate students on the mechanics of economic development and business strategy at a top global university is stuck near zero. There are not many such people in the world, as such a combination of skills is less relevant in countries that have found their place within today’s fused East-West economy. SA should be number one at producing such people, just as China needed to as Mao’s departure approached.

China’s leaders were humble and wise enough to import expertise and then diffuse the insights. SA’s economically suicidal obsession with fairness and affirmative action ensures the needed expertise remains foreign to its universities. Parliament and boardrooms operate amid knowledge shortfalls akin to the days when doctors did not know what caused HIV/AIDS.

SA’s policy makers are tone deaf to anyone who does not sing about unfairness and inequality. The key organising principles of the world’s $80-trillion economy have never demanded fairness. After 30 years of inducing poverty, China’s leadership accepted the need for broad policy changes.

SA is showing the world how displacing merit with short-term fairness adjustments erodes purchasing power triggering a poverty trap. The term “GRID”, for Gay Related Immune Deficiency, preceded the term “AIDS”. There was a desire to believe that only certain people were at risk. Former president Thabo Mbeki took denial to an unlikely crescendo.

SA’s poverty trap threatens all of us. But like HIV/AIDS it is menacing yet manageable. Both can be defeated. After 30 years of inducing poverty, China transformed its economy through enlightened policy making and SA can do the same. The key first step is to accept that penalties provoked by denialism, such as xenophobia and Marikana, can be transcended through understanding and collaboration.

Published in Business Day