Comment and Analysis

Freedom lies in a competitive South African economy

Wilmot James

The lesson of Egypt's Tahrir Square is clear: A system that benefits insiders only is unsustainable.

Big benefits: Small business growth creates jobs and participation in the economy. (Madelene Cronjé, M&G)

In their recent book, Why Nations Fail: The Origins of Power, Prosperity and Poverty, American scholars Daron ­Acemoglu and James Robinson argue that the political revolution in Egypt last year was really about toppling a closed and corrupt system that protected elite economic insiders and excluded the majority of Egyptians, who remain poor.

Although South Africa has a very different political system – we are a proud democracy, not a military dictatorship – and a more advanced economy, policymakers would do well to heed the lessons of Tahrir Square: a closed system that benefits only big government, big unions and anti-competitive big business will not create a better life for all.

That is why the Democratic Alliance’s Growth and Jobs Plan, launched last month, places such a strong emphasis on opening up the economy to encourage broad-based participation by fostering a competitive environment that is conducive to new entrants.

Competition, in this sense, is not an abstract notion about how businesses seek to outdo each other to increase their profit and market share (though rivalry of this kind is important for driving innovation, productivity and ultimately growth). It is about lowering the barriers that inhibit participation and ownership and tackling the monopolies and oligopolies that keep the cost of living high.

On this front, four areas receive particular attention in the DA’s plan: government efficiency; small-business growth; lowering the cost of ­living; and information and communications technology (ICT) connectivity.

Overregulation
Most international competitiveness surveys cite overregulation and government inefficiency as the principal factors holding back the South African economy. The World Economic Forum Global Competitiveness Report, for example, ranks South Africa 112th out of 142 countries for regulatory burdens and 114th for favouritism in government decisions.

To address this, the Growth and Jobs Plan argues for a full-time regulatory impact assessment unit in the presidency to assess all new policies with a view to prioritising growth. It proposes a graduate-recruitment programme to attract top talent into the public service, plus enhanced tender oversight and tougher penalties for corrupt officials.

Small-business growth has been shown to be essential for expanding ownership and participation in the economy and for creating jobs. Yet the high costs, complex documentation and time currently required to start a business mean that business ownership is something relatively few people can look forward to. This is reflected in South Africa’s low rate of new business ownership: 4% of the eligible population – less than half that of Chile (9.6%) and less than a third of Thailand (12.2%), – both of which are middle-income countries at comparable stages of development.

The DA plans to change this by establishing one-stop shops, based on a model successfully rolled out in Georgia, where entrepreneurs can complete all their government administration in one place, with a single online form and a single fee. The plan also details a cash-flow assistance programme for small businesses to help them to weather periodic downturns; a national venture-capital fund to assist innovative start-ups; a reduced corporate tax rate; and a business-voucher support programme to help small business owners get technical and managerial skills.  

The poor state of competition in many sectors of the South African economy is made apparent by the rising cost of living. From food to fuel and electricity to transport, everyone is feeling the pinch, but it is poor South Africans who feel it most. The price of basic foods such as bread and maize has increased between 30% and 34% and cost hikes for other basic necessities such as electricity and additional charges for road transport are further lowering living standards.

The principal cause for many of these trends is that these critical sectors are either dominated by a single player (such as Eskom or Transnet) or a small group of very large companies (as in the case of food and finance) that can dictate the prices paid by consumers.

Expanding opportunities
The DA seeks to tackle these monopolies and oligopolies by enhancing the powers and budgets of key institutions, such as the competition authorities, so they can play a more proactive role. We would separate Eskom’s various functions while expediting procurement from independent power producers and rationalise the country’s portfolio of state-owned enterprises to reduce their market dominance in key sectors.

Finally, ICT is playing an increasingly critical role in expanding opportunities for small businesses while also enhancing productivity, innovation and competitiveness. According to a study by the McKinsey Global Institute, the internet has a sweeping impact on growth, jobs and prosperity. Small and medium enterprises that utilise web technology typically grow and export twice as much as those that do not. Internet connectivity and use has been shown to increase productivity automatically by an average of 10%. Having access to fast and reliable broadband at low cost is becoming as important for democratising the economy as it was for young Egyptian and Tunisian activists seeking to democratise the political space using Twitter and text messages during the Arab Spring.

In South Africa, however, internet access remains a relatively privileged domain. Bandwidth and individual internet access are poor for a relatively advanced economy (Kenya, a much poorer country, has more bandwidth per internet user), and high tariffs put internet access out of the reach of most South Africans.

The DA believes that investing in top-of-the-range ICT infrastructure, expanding internet access and improving web-based skills are essential for enhancing participation in the economy. To achieve this, the Growth and Jobs Plan proposes a new regulatory framework for the ICT sector and significant extensions and upgrades to the country’s ICT infrastructure, financed through public-private partnerships.

In fact, some elements of this are already taking place in the DA-governed Western Cape, where the provincial administration is rolling out projects to connect every household in Khayelitsha, Mitchell’s Plain and Saldanha Bay and to support information-technology centres in every school.

Opening up the economy to greater competition is critical for lowering barriers to ownership and participation. It is key to reducing market dominance by economic insiders. The protestors who took to the streets in Egypt knew that this was essential for achieving another important goal: freedom.

Wilmot James is the federal chairperson of the Democratic Alliance

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