23 SEPTEMBER 2015 – 07:59
Harsh realities dawn for SA’s political economy that has never served interests of populace and prolonged stagnation is set to entrench desperation, writes Shawn Hagedorn
ASTUTE policy making is trumping manufacturing prowess as the base ingredient for raising a nation’s prosperity. Political legitimacy and economic performance have become inseparable.
This helps explain why analysts and commentators now frequently refer to a country’s “political economy” and why SA has entered a highly uncertain phase.
As the natural tendency is for ruling elites to favour their core supporters at the expense of the rest of the population, effective governance is elusive unless political leaders are held accountable for advancing the “common good”.
China is the exception that proves the rule. While its leadership is not elected by the broad populace, the Chinese Communist Party’s legitimacy hinges upon continued strong growth.
It has always been difficult for countries with agricultural or extraction-based economies to constrain favouritism as the governing elites simply capture strategic “economic rents” through controlling land and mineral rights. Such favouritism, frequently termed “patronage”, was unfettered prior to the industrial era.
The 1978 pivot of China’s political economy was as dramatic as SA’s 1994 transformation. China aggressively reinvented its economy to industrialise while indefinitely postponing meaningful political reforms. Conversely, SA radically altered its political dispensation, yet its policy makers continue to avoid the economic shifts that are as essential as they are difficult.
SA’s growth trajectory, reflecting China’s economic restructuring efforts, has dipped to the point that taking big risks to spur economic growth is safer than trying to maintain the status quo. However, the shifts that offer the most potential would tread on, if not trample, political loyalties.
SA has never demonstrated the capacity or commitment to implement a broad and sustainable upliftment strategy. This has been masked by Chinese demand for commodities coupled with SA’s domestic consumption having been unsustainably elevated by consumer overindebtedness.
Reliance on redistribution-focused policies may or may not be morally justifiable, but the point is fast approaching where it becomes recklessly unworkable. Redistribution cannot substitute for upliftment, yet it provides ideal cover for advancing patronage.
While China has experienced ups and downs, it arguably became the first modern nation state centuries ahead of Europe.
The key measure of a modern state is avoiding kinship or patronage-based alliances that direct the powers of the state to serve narrow interests. The West’s remedy was to hold leaders accountable with constitutional democracy tools while the Chinese developed a cultural model. The country’s so-called “one-child policy” would be politically impossible for most governments but it is not at odds with China’s traditions.
As chronicled by political theorist Francis Fukuyama, China’s centralised government is a product of hundreds of wars over thousands of years, leading to great respect for administrative capabilities.
A millennium ago, China’s administrators identified promising 10-year-old boys, who were separated from their families and raised to serve the state in distant provinces. To further exclude family alliances intruding on state loyalties, the boys were castrated….
GIVEN China’s public administrative capabilities reflecting its history as a unified, largely mono-ethnic country, tracing back to 221BC, its leaders can drive bold policy reforms. The ANC’s legitimacy derives from an electoral majority in a country where the majority has been voting for 21 years.
SA’s core political economic challenges were framed within the 20 years between diamonds and gold being discovered. During this time the Suez Canal set the stage for the East and the West congealing economically, reinforcing SA’s geographic isolation.
Virtually all prosperous societies escaped widespread poverty through trading or manufacturing. China’s pivot was dramatic as it combined the two just as the industrial era was about to be eclipsed by the information age. During this key global shift, SA’s focus remained inward as the sanctions era morphed into today’s anti-Western, pro-Brics (Brazil Russia India China SA) stance. Competitors are feted while key customers are needlessly antagonised.
SA’s political economy is not broken. Rather, it has never served the interests of the broad populace and prolonged stagnation is set to entrench desperation. SA’s political transformation is not as a substitute for broad upliftment.
The 1990s political transformation averted a bloody civil war. But it is now much clearer than even a year ago that the economic legacy bestowed on most of those born free is passed down with forlorn hopes. As a consequence, SA’s political foundations — the Constitution and its institutions — risk coming under siege from two critical groups: the political elites and young adults.
SA’s senior political leaders did not grow up with an affinity for constitutional democracies, as apartheid was enforced through constitutionally styled institutions. People favour their own cultural traditions.
Unfortunately, traditional political structures, applied in the context of governing a resource-endowed nation, narrowly entrench privileges through promoting kinship and patronage-inspired alliances. Growth prospects then decay, provoking political turmoil.
Huge numbers of young people wake up each day to barren prospects. Placing the blame on apartheid does not resonate credibly with those born free.
China’s public administrative capacity was the driving force behind much of the world economy’s growth over the past 15 years, with rising commodity demand being a core transmission mechanism. As that era ends, it is becoming obvious that the annual growth rates of many commodity exporters were grossly misleading indicators of their underlying economic health….
TALK of improving productivity and competitiveness was seen as hate speech by the tripartite alliance, the base of the patronage pyramid. It should now be clear that such objectives needed to be the focus — along with investing in people and encouraging business investments.
Economic development strategies are madly difficult at the best of times, while many of the most promising options are not easily blended with transformation and redistribution objectives — let alone patronage-building exercises.
Having unions and communists central to the ruling party core alliance serves as a highly effective bulwark to considering new options. Their anti-business and anti-Western ideologies run so deep that considering how interests align is precluded.
If the political strategy is to frustrate challengers, this was clever. However, from an economic management perspective, this amounts to malpractice. While annual rates of gross domestic product growth can be misleading, what has become critical, in a world economy constrained by inadequate final demand, is high discretionary income. Most of the world’s income remains concentrated in the West.
President Jacob Zuma and his inner circle have been executing a political preservation strategy through creating a huge combination of patronage-enriched and patronage-dependent supporters.
What Zuma and his closest allies have got wrong is overreliance on China’s demand for resources. The decline in commodity prices, along with the indebtedness of SA’s consumers, leads to two harsh realities.
First, there will be far less patronage to spread around. Second, patronage funding — from social grants to salary increases for public servants, to sweetheart deals — will crowd out infrastructure spend, thus further limiting future growth prospects.
Zuma loyalists are well placed for how political battles would normally be fought. The nation’s modest growth trajectory reflecting imprudent overexposure to China’s economy has, however, left them far more vulnerable than they would have anticipated even a few months ago. Volatility looms.
Published in Business Day