Will the 'populist' thunder pass?

During the medium-term budget policy statement (MTBPS) South Africa’s hopes of reaching its goals of halving poverty and unemployment once again rest on a combination of economic growth and moderate increases in budget spending.

Historically, the national treasury has taken a similar stance to create conditions for increased levels of investments, savings and stronger export performance.

Sadly, despite its intent, the responses from the financial sector have not yet been robust in terms of fixed investment and venture capital. Obviously there are binding constraints, but despite this, in comparable contexts there have been both stronger, quicker and more adaptive private-sector responses. Yet, rather than focus on muted responses from private enterprises, a strong signal has been sent that the national treasury will not cower before “populist” pressures.

Ironically, so-called “populists” have a solid track record, evidenced in two examples. First, trade unions provided the political muscle to stop the speedy relaxation of exchange controls. Today the wisdom of this political stance is seen in it stopping the financial sectors from participating in dubious debt instruments that have propelled the global economic crisis.

Back then the retention of exchange controls was typically decried as “populist protectionism”. To the credit of the national treasury it utilised political pressure from trade unions to temper access to markets demanded by the financial sector and ensured adequate monitoring of financial institutions.

Second, government should have listened to voices arguing for increased investments in electricity generation, which emerged a decade before the electricity crisis. Arguments for ensuring a diversity of supply, government investments in new generation capacity and investments in renewable energy were decried as being “populist”, and not utilising the comparative advantage of cheap electricity. The argument was that market conditions for private participation would emerge, allowing government to fund expansion off-budget.

The market conditions never emerged, resulting in a significant transfer of funds away from social spending to fund electricity-generation capacity and sharp rises in household electricity prices.

Progressive civil society has not called everything correctly, but to decree carefully considered and democratically determined policies as representing a quick fix is a misrepresentation of reality, and creates a barrier to a national conversation on economic policy.

This conversation is about how one views the long run. For the national treasury, with its narrow remit, that long run in the final analysis consists of a good ­investment climate coupled with consistent economic growth across upturns and downturns. In some senses these arguments suggest that not only economic growth, but also time, is on the side of the poor.

There is, however, over­whelming evidence that a stronger focus on distributional outcomes and opportunities for poor households are needed. The South African government’s policies for inclusive and labour-absorbing growth, however, remain nascent and today still come off second best against policies designed to ensure that the so-called macroeconomic fundamentals are in place.

The overall picture is that structural poverty and the inequality trap remain resistant to government’s best efforts. The traps are evidenced most visibly in violent protests over service delivery and more recently in the xenophobic attacks. More­over, the power of pricing cartels in several food sectors raises prices for the poor and limits entry of small businesses into markets. Further evidence is presented in black economic empowerment deals, which in the majority of cases do not even create a single job.

Within government the response has been weak. Most so-called “second economy” strategies lack a dedicated operational budget, including national programmes around a national youth service and local economic development. In fact, more than budgets at present, many of these areas require the development of strategic plans. This does not simply mean more spending, but more effective spending, together with interventions in the economy.

It is thus plausible to make the argument that the national treasury exhibits a “populism” that favours the business cycle over the poverty cycle. But that would be playing to the gallery and not focusing on the significant developmental challenges that we face and the need to bring together widely differing standpoints under a common developmental strategy. That is called economic leadership. Let us hope that the populist thunder of every variety will pass.

Ebrahim-Khalil Hassen is an independent policy analyst and a member of the Cosatu economics panel. His writes in a personal capacity

 

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