Election 2014: it’s all about the economy
- Trudi Makhaya
- 29 Apr 2014 (South Africa)
It’s rare for a technical working paper produced by government officials to make waves during an election season. Yet this is the fate that has fallen upon Faulkner, Loewald and Makrelov, three public sector economists whose paper is available as a Reserve Bank working paper. Titled Achieving higher growth and employment – policy options for South Africa, the paper has been cited by the DA as validation for its economic manifesto. The Reserve Bank challenged this claim, emphasising that it is a non-partisan and independent institution. What emerges from the minor storm is that the DA believes that its policy proposals reflect those recommended by the paper.
The paper covers familiar ground in identifying the constraints on economic growth. It illustrates the oft-forgotten point that significant and sustainable growth requires policy interventions that are complementary and reinforcing; to ease one constraint in the face of other bottlenecks (or worse, contradictory policies) yields limited gains. According to the simulations presented in the paper, to reach the much-touted 8% growth rate, certain key variables have to move in the right direction. The labour intensity of production, savings, skilled workers, competition levels within product markets and foreign direct investment all have to increase; whilst transport and logistics costs have to be reduced. In other words - a new push in policies across education, savings regulation, privatisation, competition policy, immigration, infrastructure regulation and trade liberalisation amongst others.
The paper also demonstrates the persistence of unemployment in the South African economy. The unemployment rate by 2025, in spite of 8% growth, is estimated within a range of 11.6% to 26.5%, depending on assumptions about the extent of participation in the labour force by the population. The 6 million jobs created under the scenario favoured by the DA are obviously needed. But with unemployment remaining quite high even after taking these jobs into account, this suggests the need for other interventions to ease the plight of unemployment and to foster dignity and inclusivity. In fact, growth would have to deliver at least 7.5 million to 10 million jobs to bring unemployment levels to 10%. The disenfranchised do not have access to macroeconomic simulations, but from their lived reality they sense that growth-oriented policies will not be enough. The DA, in its emphasis of the types of growth-focused policies highlighted in the paper, misses an opportunity to address the concerns of those who have been excluded from economic growth in the past, and who continue to face the real risk that they may never have access to a job.
The ANC has a lot to answer to voters for the policy errors, misconduct and corruption that have constrained growth and development below its potential over the past twenty years. These include the dysfunctions in markets with significant government involvement such as telecommunications, aviation, electricity and freight rail; the lost opportunity in properly educating a generation otherwise born free; collapsing local governments and poor public services. It would be patronising to focus on its well-known successes without pointing to the obvious fact that far more could have been accomplished.
The EFF, with its vintage policies snatched hastily from the historical archives, should not be mistaken for a throwback. It simply understands that when people revolt, rarely do they replace an old order with creative, futuristic ideas. Be it the French Revolution, the Iranian revolution or the Arab spring, we find that old ideas find their niche after the upheaval. They may even come to dominate. Though the EFF is not about to deliver radical social change, it has chosen to frame its identity in revolutionary terms and it knows that innovation is not essential. Change, or the promise thereof, or even its illusion, is enough. Certainly enough for the EFF to gain the kind of electoral share that makes them power brokers.
The EFF’s undoing is that it promises economic emancipation but its policies reflect the opposite. This is not a real problem for them, of course, because they are not about to form a national government any time soon. The EFF promises freedom to toil under state monopolies in an economy with almost no space for black people (who they claim to emancipate) to participate in independent economic activity. In fact, it’s more of the same, with black people being dictated to in their economic lives. The party also indulges in an economic fantasy where South Africa’s industry is protected by high tariffs and tough localisation policies, yet the rest of Africa and the world embraces its products without so much as a phone call to the WTO. Freedom, closely examined, turns out to be a defeatist retreat from private enterprise couched in fiery language. Capitalism has failed to deliver for the South African masses, the rhetoric goes; but have attempts at communism delivered well-being anywhere?
The ANC tells us that it will be guided by the National Development Plan in its next term in office. It also tells us that it will continue to implement policy instruments such as the National Growth Path, the National Infrastructure Plan and the Industrial Policy Action plan. Its manifesto suggests an attempt to balance private sector-driven growth with state intervention, which promises to be extensive. Past experience shows that the party has struggled to strike this balance. The next government will continue to bumble along at the now-established Khongolose rate of growth which averages around 3% per year.
The EFF has the potential to provide scrutiny over government action, though it is difficult to speculate on the quality of its forthcoming contributions. Given its self-declared Marxist-Leninist Fanonian stance, it will reinforce, if not spur, the ANC’s drift towards state-led beneficiation and industrialisation in an uncritical manner.
Shooting at an unprecedented 8% growth rate, the DA puts forth a conventional growth model, which can generate some jobs (though not 10 million) and alleviate poverty and inequality. The risk of such a conventional growth model is that it cannot, on its own, deal with the legacy of centuries of oppression, which means that many people do not have the basics in education, transport and health for example. This approach also treats the outcomes of past injustice as if they were just a set of unfortunate and accidental deficits to be treated with gradual remedies. Our constitutional order, if it is to mean anything, requires a far more robust response to the effects of the systematic exclusion of the majority from the economy. The DA’s document on economic inclusion deals with this legacy, but this is a strain of thought that is under-developed and also under-exposed in the party’s communication of its policies and its previous engagements in Parliament. This is unfortunate, for a party which is not only the second most important in South Africa, but which hopes to occupy the Union Buildings. DM