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Part One: Let’s build a new economy for the many, not just the few


Neil Coleman is Co-Founder and Senior Policy Specialist Institute for Economic Justice. @NeilColemanSA

There is no doubt that the multiple social and economic challenges South Africa faces are extremely daunting. But so were the challenges faced by societies ravaged by war and underdevelopment, which managed through bold thinking and strategic focus to turn their economies around and put them on a positive development trajectory.

As South Africa waited with bated breath for the president to announce his new Cabinet, and the reconfiguration of government, commentators — even relatively conservative ones — correctly identified the lurking elephant in the room.

How do we make a new start politically and ensure clean governance if we don’t also build a new economy which overcomes the deep socio-economic malaise which underpins many of South Africa’s pathologies? Commentators from the left to the right on the spectrum agree that the current situation is unsustainable. However, there is no agreement as to what needs to be done to change it.

A narrative is emerging, particularly in the business media, that there is “no need” for a policy change. Rather, what we need is “better implementation” of existing economic policies. A cynical response to this would be that the “no change lobby” represents a tiny, privileged section of society quite comfortable with the trajectory of economic policy, because it benefits them.

This may be true, but only to a degree, as the deepening crisis threatens us all. To a greater extent, it reflects the poverty of economic ideas within important centres of the ruling establishment.

In the face of a profound crisis, we are told to “implement better” the same policy orthodoxies which have been attempted over the past 25 years, despite these policies having failed dismally and being widely discredited internationally.

Dominant economic discourse in South Africa lags hopelessly behind shifts in international economic thinking, even within centres of orthodoxy such as the IMF. Dogmatic adherence to failed policies involves magical thinking — in effect aiming to defy Einstein’s law: That doing the same thing repeatedly, and expecting different results, is the definition of insanity.

South Africans are dying for a change

Most tragically, ordinary South Africans are suffering as a result of these choices. Every day that we pursue wrong-headed economic policies, we unnecessarily reproduce the toxic triplet of rising poverty, world-beating inequality and horrific levels of unemployment which in turn fuel social ills such as malnutrition, disease, crime, corruption, and gender-based violence. Business-as-usual solutions only entrench this cycle.

South Africans are literally dying for a change. And the current political moment cries out for some bold and imaginative thinking.

But if this shift is to happen, the government needs to open itself up to new ideas. As more than 40 top economists and policy specialists correctly argued in a letter to Tito Mboweni in January 2019, “out of the box” thinking is required in order to rejuvenate the South African economy.

There is a better alternative

There is no doubt that the multiple social and economic challenges we face are extremely daunting. But so were the challenges faced by societies ravaged by war and underdevelopment, who managed through bold thinking and strategic focus to turn their economies around and put them on a positive development trajectory.

These societies that faced equivalent or worse constraints confronted them head-on. The Asian Tigers were written off as economic basket cases by development economists in the 1960s, but embarked on state-led development paths with a singular focus (albeit totalitarian in certain respects). The United States of the 1930s, devastated by depression, successfully introduced the New Deal under the visionary leadership of Franklin D Roosevelt, despite being opposed by big business.

Post-war Europe rebuilt itself from the ashes, using social democratic, inclusive policies to regenerate their war-ravaged societies; and Scandinavia showed that a developmental state could be both democratic and egalitarian in responding to challenges of poverty and inequality. In the 2000s progressive developmental states in Latin America successfully used redistributive policies, but failed to break their dependence on commodities. Finally, China has shown that determined state intervention, using unconventional economic policies, can address the most intractable social challenges.

None of these experiences represents “models” which can be mechanically adopted. But they give us inspiration that other countries have overcome challenges as big or bigger than ours.

The strategy that I outline here, to put our economy on a new growth path, appears ambitious. Many will question whether it is possible to achieve these things, for reasons we are so familiar with, such as: We have a dysfunctional state; our society is characterised by extreme levels of conflict; many of our leading businesses are not South African-centric; the international economic environment is unfavourable, and we have to deal with the challenge of rapid technological change.

We have seen these and related arguments advanced repeatedly in South African economic debates over the past 25 years, and they have ultimately been excuses for inaction1. The “solutions” we have adopted supposedly to address these constraints have only worsened our vulnerability.

For example, contracting out the state’s functions has only weakened the state further and encouraged corruption; the lifting of capital controls and allowing business to move its operations offshore in an unregulated manner has led to a massive bleeding of South Africa’s assets; and attempting to appease the international financial establishment through untrammelled economic liberalisation has led us to surrender our economic leverage and policy instruments… The list is long.

Elements of an alternative

If we agree that current approaches aren’t working, then what is the alternative?

I suggest that a combination of three types of intervention, sequenced carefully, and implemented with the necessary boldness, can propel the South African economy on to a new, inclusive growth path. These are detailed in Part 2 of this article, but broadly consist of:

  1. A stimulus package. Used correctly, state economic levers can be harnessed to ensure a relatively immediate impact on the economy, for example, through an aggressive fiscal stimulus and public investment programme, coupled with a more expansionary monetary policy which stimulates economic activity. Different states, particularly since the global economic crisis, have implemented such stimulus packages with a substantial impact.
  2. Income and social protection. Transitional measures to protect the most vulnerable people, communities, and industries can buffer the impact of the social and economic crisis, but also have a stimulus effect by circulating money and raising demand in the local township and rural economies.
  3. Systemic interventions. Longer-term systemic interventions to structurally transform our economy, including industrialisation and diversification, a green new deal, and a programme for regional development.

These three pillars for building a new economy are mutually reinforcing. For example, the fiscal and monetary stimulus will help to propel investment into the diversification of the economy. Redistribution helps to generate effective demand for locally produced goods and services, and so on.

The current political moment creates the opportunity and necessity for the new administration to think differently about these challenges. If the winds of change are to be sustained in the post-state capture era, we need to build the confidence of South Africans that:

  • We can build an economy that benefits the many and not just the few — disrupting the legacy of inequality and disadvantage which the president spoke about in his inauguration speech;
  • The reconfiguration of government must not just be a temporary reshuffling of Ministries — a new era of integrated and co-ordinated governance is needed in which social and economic ministries, with the Presidency, co-ordinate a strategy for building a new economy; and
  • There needs to be engagement with a broader range of social forces and ideas, going beyond the current focus on outdated orthodoxies.

A range of ideas for policy interventions to build these three pillars has been advanced by progressive economists and institutions. These are summarised in the second of this two-part article. Before I turn to this, it is important to recognise that there are certain structural realities which have to be addressed if our best efforts are to succeed.

The challenge

To reset our economic trajectory we must confront the fact that the South African economy is structurally dysfunctional. De-industrialisation, a bloated financial sector, short-term capital flows, economic concentration, failing SOEs, coal dominance, commodity dependence and eroding infrastructure are some of the key challenges. We can only overcome the economic malaise if we actively reorient the economy, including, but not limited to, ensuring diversification and industrialisation.

A series of short and medium term interventions, such as a stimulus focused on infrastructural spending or green energy, must simultaneously provide immediate relief while helping to restructure the economy. This must be coupled with a longer-term programme for systemic change.

We need to look at what has enabled societies in the 20th and 21st centuries to drive successful economic transformations and consider what a realistic route is to achieve this in the South African context. In particular, we should reflect on the role that states, the private sector, organised labour and civil society have played in these transformations and draw the appropriate lessons while addressing the specificity of our context.

What we require at the outset is a coherent plan for a way forward, and this cannot rely on outdated and ineffective status-quo economic thinking. DM

Part Two will look at building blocks for the new economy.

Editor’s note: A dated bio for Coleman was published initially with this column. His bio has subsequently been updated. 

1This was best described in an interview with the famous economist Ha Joon Chang, who described South Africa as ‘paralysed by caution’.


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