ECONOMY AND POVERTY OP-ED
In the belly of extremes: What does business bring to the table of the poor? That’s the main ingredient of a social compact
While policy choices and economic theories are key to driving growth, our current dilemma is the inability to execute. Economic theories are all very well, but we cannot remain oblivious to the actual existential risk of an uprising driven by large-scale hunger and desperation.
Margaret Thatcher says in her memoirs: “Privatisation… was fundamental to improving Britain’s economic performance. But for me it was also far more than that: it was one of the central means of reversing the corrosive and corrupting effects of socialism… Just as nationalisation was at the heart of the collectivist programme by which Labour governments sought to remodel British society, so privatisation is at the centre of any programme of reclaiming territory for freedom” (as quoted in the paper “The UK’s Privatisation Experiment: The Passage of Time Permits a Sober Assessment,” by David Parker).
To say that these sentiments resonate in the contemporary economic policy discourse is not far-fetched. We are somewhat in the belly of extremes.
Against this background, we feel duty bound to discuss the spirited critique of Colin Coleman’s recent exploration of the way out of our national economic quagmire. Last month’s Sunday Times article by Coleman, “South Africa does not have a debt problem, it has a growth problem” (3 October 2021), seems to have hit very raw nerves.
On 10 October, a rejoinder by Isaah Mhlanga appeared in Business Day with the headline “Fashionable road will lead to ruin in the near future”. Thabi Leoka also responded with “Coleman is wrong, South Africa cannot afford more debt” in the Sunday Times. Then, on 21 October, Claude de Baissac exclaimed in Business Day, “A strategy guaranteed to fail”.
Leoka argued that Coleman had accompanied “Team South Africa” in supporting the commitment to the macroeconomic framework, but now he is reneging on that, as though Coleman could not be entitled to argue differently. Leoka herself in Fin24 on 15 June argued that “You cannot eat GDP growth and GDP does not pay the bills”. Her and Coleman’s arguments are not suggesting anything untoward.
Perhaps we secure some cold comfort from Thomas Kuhn on paradigms and that science grows through refutations. This is against South Africa’s burning platforms of anger from poverty, unemployment and inequality. Again, it is not far-fetched to conclude that the low voter turnout in Monday’s local government elections is a manifestation of this season of discontent.
Allow us a necessary digression in order to land the arguments appropriately. In this regard two points are important. The first concerns the origins of the formalisation of national accounts into national statistical systems and the reasons for adopting that standard. The second, and a corollary, is the notion of the Overton Window of political possibilities.
First, then: what of the National Accounts? After World War 2 the League of Nations was replaced by the United Nations. Two of the UN technical commissions established immediately after the war were the Commission on the Status of Women in 1946 and the Statistical Commission in 1947, which were important given the devastating consequences of war on women and economies.
The latter was mainly established to address and measure the risks associated with macroeconomic instabilities which led to World War 2. Our history books at high school attributed the war to simplistic historical events. So, lest we fall into the same trap in these arguments we need to set this record straight. The stock market collapse of October 1927 and the global financial crisis of 2008 and in between the 1998 economic murmurs of Asia and Latin America, and finally Covid-19 haunt us and thus bring to the fore the question of public policy and the question of global peace.
Two personalities and three politicians stand out in these seven decades of life since World War 2. Lord John Maynard Keynes, Franklin Roosevelt, Milton Friedman, Margaret Thatcher and Ronald Reagan.
After World War 2 Keynes was a godsend through his letter to Franklin Roosevelt, in which he advocated borrowing to finance public investment, and for this the banks had to print money. This is what informed Roosevelt’s New Deal and the Marshall Plan.
In the 1960s, Friedman, a sharp critic of Keynesian interventionist policies in money supply, was building a case for free market economics and the value of competition. Here again, an economist’s advocacy caught the eye of not one politician, but two from the dominant countries of the West. Friedman’s advocacy got the ear of Reagan and Thatcher. But the consequences were more devastating for Thatcher as she went for smaller government and aggressive privatisation, including of rail.
By the end of her tenure, unemployment in the UK had soared from under 7% to just above 13%. Once adopted by Reagan and Thatcher, the stage was set for the agency of the World Bank and the International Monetary Fund to discipline Africa with structural reforms of small government, privatisation and user pay.
The Millennium Development Goals rose out of these structural reforms to decry poverty, then, importantly, the Sustainable Development Goals with the notion of “leaving no one behind”, climate change and the importance of the environment. The advent of Covid-19 has not been more helpful than in revealing the follies of Reaganomics and Thatcherism, but more importantly has shown the wicked effects of the World Bank and IMF and structural reforms on Africa.
Now let’s deal with points of convergence. What emerges from the recent nasty intellectual fight among economists is the convergence that the government has been inept and lackadaisical. Mhlanga, Leoka and De Baissac totally dismiss and reject the idea of a grant system to help the poor as propounded by Coleman, Duma Gqubule and others. They seem to be oblivious to the existential risk of an uprising driven by large-scale hunger and desperation. They fail to draw from World War 2 that conditions similar to this existed where the instigators of war were wantonly irresponsible as they defined the government, yet out of that war nations rose.
Leoka, on the one hand, talks about a social compact. That, of course, is important, but unless it addresses the scourge of hunger and poverty such a compact will not be worth the paper it is written on.
De Baissac goes back in history, and remembers the second term of President Thabo Mbeki as one when South Africa held promise. But he does not delve into the reasons for this. A careful inspection of that period reveals a shift from GEAR to AsgiSA. Even then, in the words of Johann Rupert, they went on strike and did not believe Mbeki and his intention to invite business to invest in the economy. He observes that today gross fixed capital formation is at its lowest with no prospect of coming back, the rich are voting with their feet by leaving South Africa, and the three economists argue that any increase in tax will accelerate the exit.
In the face of this dilemma, Coleman provides a prospect for moving forward. Fundamental to his discussion is a shift from Friedman’s monetarist and free market fundamentalism to a socially desirable, defined South Africa – and this is where Leoka’s idea of a social compact has to be looked at. The shift in paradigm requires us to know and understand the Overton Window of political possibilities that drove Roosevelt from the inspiration of Keynes, and those that drove Reagan and Thatcher.
The context of Covid-19 and the crisis that South Africa has seen point to a failed historical economic paradigm. The brilliant moment of AsgiSA contains the nuggets of economic theory and resulted in better results, which scholar-bureaucrat Alan Hirsch dubbed the “season of hope”.
Arguably, the past 27 years have only that short-lived AsgiSA moment to be proud of. Of course, the years from 2010 changed the trajectory significantly, with rampant corruption and other ills that plagued the country.
Coleman, whatever adjectives and adverbs have been thrown his way, has made an important point on the main ingredient of the social compact: What does business bring to the table of the poor?
Yes, they can bring compassion; yes, they can bring tears. But if they do not bring the economic resources with which they have been privileged, Leoka’s social compact rings hollow.
Obviously the government’s response has been inconsequential, and De Baissac makes this abundantly clear, pointing to specific failures. Even the current, meticulously administered, weird and wonderful sectoral master plans — whose secret recipes are held in a safe under the desk of the trade, industry and competition minister — are yet to help re-industrialise the country. De Baissac continues that we are seeing the further obliteration of the working class, and the loss of entire value chains. He correctly says: “I assume Coleman knows that structural reform in government is to South African politics what Chernobyl was to life.”
Coleman’s proposals are worthy of our attention. What is lacking in his discussion but is present in De Baissac’s, is modelling; and what is absent in De Baissac’s is why things are the way they are. Which would speak to the paucity of the national agenda, a matter Coleman addresses. Leoka and Mhlanga are arguing from the point of view of what things are and not why they are the way they are, and without any modelling tools. If they modelled, they kept that close to their heaving chests.
Three important points that need addressing simultaneously are: What is the national agenda (only Coleman addresses that, Leoka, Mhlanga and De Baissac fail to); second: what tools are we using to interrogate it (only De Baissac goes into it at length and Coleman does so moderately, while Leoka and and Mhlanga are barking at the moon); third: how will we know we have succeeded? Coleman does this very well, while De Baissac, Leoka and Mhlanga keep mum on what success will mean.
We need to answer all three questions simultaneously. The Indlulamithi Scenarios project has engaged with all three, including what failure means.
Mhlanga, Leoka and De Baissac remain on the path of failure, as Marx wrote on Feuerbach about philosophers who explain the world, when in fact what is needed is to change it. What is clear is a change of paradigm – the Overton Window of political possibilities is nigh wherein the impossible is now the inevitable. Coleman is not far off the mark in that regard.
We would be failing fundamentally in this article if we didn’t raise another more fundamental issue that slows us down: The way the government operates. In a discussion with the commissioner of the South African Revenue Service, Edward Kieswetter, he says pointedly that while policy choices and economic theories are key to driving growth, our current dilemma is the inability to execute. Kieswetter argues that “we cannot only fix the balance sheet and funding issues raised by various economists if the national operating model does not change. This starts with hiring competent individuals who can execute state plans, and deal more decisively with corruption. Even the best-conceived plans will fail if we cannot execute and implement effectively.”
Later he argues: “Growth will sadly not come by creating more funding sources – it will only come when we can diligently, and effectively, implement our economic recovery plans.”
The point about the government’s operating model is an important subject that needs to be addressed urgently. Countries that we love to quote – Japan, Germany, South Korea, Singapore, China, even Vietnam – are characterised by a bureaucracy and political leadership that effectively implements their programmes. They never prayed to become capable states. They implemented decisive reforms, hired promising men and women, trained them and they got the job done.
And they worked with all social partners, while we remain suspicious of the intentions of capital, sometimes even forgetting that it is us, in the employ of the state, who hold all the keys to the regulation room. Ideology did not become their religion. It became a zeitgeist inspiring them to get on with the job and the results are there for the whole world to see. DM
Pali Lehohla is former statistician-general. Busani Ngcaweni is Principal of the National School of Government. They write in their personal capacities.