Foreign investors want growth, not deregulation, argues ANC MP Rob Davies
THE announcement of the appointment of a Cabinet “super-committee” to co-ordinate government strategy to promote economic growth has provoked a good deal of media comment. Some have seen the establishment of this committee as an implicit acknowledgment by the Government of National Unity of the failure of the strategy of the RDP, which is alleged to have put the cart of redistribution before the horse of economic
Underlying some of these interpretations is, I believe, an attempt to take the debate on economic policy back to where it was before the installation of the GNU and the subsequent endorsement of the RDP by virtually every key stakeholder. Implicit in some commentaries has been a suggestion that what we really need are policies that give top priority to “investor friendly” adjustments in the financial economy, such as bringing the budget deficit and rate of inflation to the “norms” set by international financial institutions, and promoting deregulation and privatisation.
The major motivation for such policies is seldom argued in terms of any coherent strategy to promote growth- oriented structural changes in the real economy. Rather, they are usually held up as essential in order to attract elusive foreign investors whom we are told have a range of options and want to see such measures in place before committing themselves to any “emerging
A major problem with this kind of argument is that its underlying assumptions are simply not borne out by the evidence. A recent study by Ernst and Young International found that the top investment priority of 57 percent of major international investors studied was a country whose policy framework is significantly different from that often recommended to us — China.
Foreign investors are, in fact, scrambling over each other to get into China, because the country has a proven record of high growth; generated initially by its own internal efforts and taking place in the absence of a neo-liberal policy framework. Surely the lesson is that investors respond not to policy frameworks and intentions, but real opportunities for profitable investment.
I believe that suggestions that we need a fundamental change of course are incorrect, and that the basic approach towards growth and development outlined in the RDP base document remains valid. The real debate, I would suggest, ought to focus on the implementation of that strategy — on how most effectively to push it forward, and how we can address any problems in implementation that our experience of the past 15 months has revealed.
The RDP base document says: “The RDP is based on reconstruction and development being parts of an integral process. This is in contrast to a commonly held view that growth and development, or growth and redistribution, are processes that contradict each other. Growth — the measurable increase in the output of the modern industrial economy — is commonly seen as the priority that must precede development. Development is portrayed as a marginal effort of redistribution … The RDP decisively breaks with this approach. If growth is defined as an increase in output it is of course a basic goal. However, where that growth occurs, how sustainable it is, how it is distributed, the degree to which it contributes to long-term productive capacity and human resource development … are crucial
Maintaining this conception of growth and development as integrated processes is absolutely fundamental. The ANC alliance went through a lengthy debate on the relationship between growth and redistribution. We were urged to go for an orthodox “redistribution through growth” strategy, in which there would first be growth and then the fruits of this would be redistributed. For a while we toyed with “growth through redistribution” in which redistribution would both stimulate growth and create a social ambience conducive to growth.
We finally concluded that there was no single royal road to growth, which would depend on several factors, but insisted that there was an inextricable link between growth, reconstruction, redistribution and development. We need growth in order to solve the pressing socio-economic problems facing our people and raise living standards, but unless we address the problems of poverty and inequality we will not be able to create a climate conducive to sustained economic
The Macro-Economic Research Group (Merg) study, Making Democracy Work, took the debate a step further by looking at sequencing. The model, developed within the Merg project, identified phases in a growth strategy. The first would be led by public investment focusing on the RDP basic needs areas. The model suggested that social and physical infrastructural development might account for 54 percent of the growth in the first phase lasting around five years. This would have a multiplier effect on the rest of the economy and create a social ambience conducive to a second growth phase in which private investment — both domestic and foreign — would play a more prominent role.
It is for these sorts of reasons that the GNU is quite correct to insist the RDP must raise the level of public investment in priority areas and hence limit and reduce public consumption expenditure. This, rather than some desire to look good to the rating agencies, is the reason why the GNU is right to insist on sound fiscal discipline, re-prioritisation and value for money in public spending. If achieving this is taking longer, or proving more difficult to achieve than expected, we need frankly to explore the reasons for this and debate possible solutions.
The debate on a growth strategy must maintain a sharp focus on policies that will have an impact on the real economy. Industrial policy, supply side measures, competition policy, small and medium enterprises and research and development promotion need to remain priority areas. So too do active labour market policies aimed at raising the levels of skills of the workforce and promoting new, more participatory, forms of workplace organisation.
Finally, we need to continue to recognise that the state (acting in concert with other stakeholders) has a central role to play in all of these areas. As a World Bank study on East Asia concluded, “… in a few economies, mainly in north-east Asia, government interventions appear, in some instances, to have resulted in higher and more equal growth than would otherwise have occurred”.