SA’s core problem is pervasive poverty — inequality is a symptom
Might ANC infighting achieve what six elections have failed to produce: an objective economic assessment leading to effective policies?
Economic threats coupled with contestation for party control pit realists against those whose ideologies or greed favour unaffordable indulgences. Updating the national dialogue will encourage a favourable outcome.
The ANC’s unionists, communists, cronies and populists are united by support for redistribution. Continuing to overindulge such policy biases would ensure dismal long-term growth even if corruption and state-owned enterprise mismanagement were remedied.
The pro-growth faction must now confront the unsustainability of policies that favour redistribution at the expense of growth. From the finance minister’s perspective, when regulations undermine merit, where is the line between transformation and patronage to be drawn? If overemphasising transformation has choked growth, as per the “Eskom effect”, is it not necessary to dial back transformation in favour of sustainable and inclusive growth?
The debates are made more tenuous as there are no promising plans under consideration. On the plus side, the key impediment, how ideologies and greed within the ruling party have framed issues with impunity, is eroding.
Lifting people out of poverty is a mechanical exercise. It has been achieved at scale by nearly every country in all other regions. Conversely, success in politics is achieved through shaping debates. It has suited the ANC politically to frame SA’s economic challenges in terms of inequality. But SA’s core problem is pervasive poverty; inequality is a symptom. Treating tuberculosis is not about the cough.
Overcoming poverty requires expanding the number of affluent households — not maligning them. What undermines SA’s creditworthiness even more than Eskom is the lack of visibility regarding the time that the country will start creating wealth. This requires increasing worker productivity; global integration; diffusion of knowledge; and household savings.
Now that the voters have voted, the national dialogue must upgrade from amorphous issues such as inequality to focus on the mechanics of poverty alleviation and wealth building. It is time to illuminate SA’s unsustainable household trends.
As a recent FNB study pointed out, 25% of middle-income, take-home pay is consumed by interest payments. This shouldn’t be a problem when the funds are used to buy a home and the real rate (nominal rate less inflation) is no more than 3% or 4%, as is common in many countries. Yet, here, real rates charged often exceed 20% and the proceeds frequently fund current consumption or service outstanding debt. Wealth creation gives way to wealth destruction.
There are nearly 10-million funeral policies among about 15-million households. The reason quantitative easing is a prospective tool for rich countries is that they have efficient economies with low inflation and most of their households have accumulated considerable wealth — unlike households that must save to cover funeral expenses. Much household wealth is necessary for central banks to effectively counter persistent stagnation by encouraging consumption through punishing fixed income savers.
SA has started down a path of forcing lenders to provide debt relief. The status quo in consumer lending is not sustainable but there are ways to solve excessive household indebtedness through regulators and lenders seeking to expand wealth, not destroy it.
Economists categorise quantitative easing as a form of financial repression. Another such tool is prescribed assets. Neither fits SA’s circumstances. By promoting such imprudence, ANC ideologues and cronies showcase their biases.
Economies resemble machines. SA’s domestic consumption cannot fuel adequate growth. The ratio of SA households that are poor or overindebted relative to those that are neither is nearing nine to one. Constraining household wealth destruction must be accompanied by sustained high growth, which is only possible through expanding exports to affluent markets. Reluctance to accept this is not unique to the ANC, which helps explain why workable growth plans are conspicuously absent.
Effective policymaking must be guided by a sound plan. The ANC being at war with itself means the pro-growth faction needs a powerful plan as desperately as the nation does. Will inner party dynamics reverse commercial logic being displaced by political framing? Will acknowledging household realities launch a reset?
The national dialogue must better appreciate that SA’s rising poverty traces to policies that look inward and backwards amid a deeply integrated, rapidly evolving world. Once this is broadly recognised, a high-growth plan can be mapped.