The DA's policy has been criticised for stating that a capitalist open market would be able to break up oligopolies and stimulate growth. (Photo by Lefty Shivambu/Gallo Images via Getty Images)
The Democratic Alliance’s recently unveiled economic policy has drawn criticism in some quarters because it aims to create a “neoliberal utopia” instead of drawing lessons from history that, globally, growth has been achieved through direct government intervention in specific sectors.
Party leader John Steenhuisen and head of policy Matt Cuthbert launched the policy last Friday, touting it as a “historic” and “groundbreaking document”.
It seeks, among other measures, to withdraw government protection for localisation in sectors such as the automotive industry, arguing that this has an adverse effect on global competitiveness as it prevents access to cheaper imported inputs for local production lines.
The policy promises to end cadre deployment, get rid of all sector masterplans and let the private sector make its own decisions on growth; freeze the minimum wage at the current level; heavily support small businesses by cutting red tape and providing financial support; raising the child support grant to from R530 to R760 and extending it to pregnant women, as well as converting the social relief of distress grant to a job-seeker’s grant.
The policy package for stimulating job creation gives “the sense the party wants to resort back to extreme neoliberalism” by curtailing government expenditure, said Ongama Mtimka, a political analyst based at Nelson Mandela University in Port Elizabeth.
“The DA’s free market mantra is in fact what accounts for achieving the opposite of what they want to achieve,” he said.
“If they claim that deindustrialisation has been rapid under the ANC, with policies that have targeted sectors in which the government seeks to stimulate growth, they must wait and see what happens to domestic sectors which they say should not be protected, once they have the trade strategy they want to implement.”
Conversely, the strategy of the apartheid government in the 1950s and 1960s, which led to economic growth and massive jobs creation, was due to “import substituting” industrialisation with a strong localisation drive, Mtimka said. For example, as a result of this, places like Nelson Mandela Bay and East London saw the development of upstream industries for the automotive sector.
“If we look at developmental states across the world, they developed precisely under these mechanisms. The story of South Africa’s growth is a story of strong government intervention,” he said.
“The DA wants to bring a neoliberal utopia that has got little evidence of success and they are looking at countries that initially started with these protectionist policies as examples of how neoliberal policies work. Those countries actually built services industries against the backdrop of very industrialised economies.
“Their idea that you could simply allow the markets to determine investments and not have targeted state intervention … seeks to appeal to neoliberal ideological purity more than it does to historical facts about what actually stimulates growth in economies.”
When it comes to its plans to grow the small business sector, the DA’s policy view is not different from that of the ruling ANC and the Economic Freedom Fighters, which agree that the sector needs significant investment, Mtimka said.
“When you look at the ANC government since the late 1990s and early 2000s, it’s created various policy instruments and programmes to stimulate those sectors,” he said.
These include funding instruments at national, provincial and local government level, such as the National Empowerment Fund, the Industrial Development Corporation, the National Youth Development Agency and the department of small business development, as well as, for example, at a provincial level, the Eastern Cape Development Corporation, the sole purpose of which is to fund small, medium and micro enterprises.
“The challenge is sometimes ANC corruption has constrained the extent to which you could get great results, where you find that it’s not just any entrepreneur that can be funded but entrepreneurs linked to the ANC somehow and, when you corrupt decision-making like that, you inhibit the ability to achieve results from policies,” Mtimka said, adding that a discussion was needed on how to create equitable access to funding.
Oligopolies emerge “as you take out state intervention because capitalist markets are unfree”, Mtimka argued.
“They don’t like competition, they tend towards concentration and swallowing competition so, for that, you need state intervention to prevent it through competition policy, among other things,” he said.
“The market structure — how goods and services move from manufacturing or primary industries to the final consumer — in South Africa is highly concentrated. As far as distribution processes are concerned, a small range of oligopolistic companies dominate the movement of goods.
“And, in the retail sector and across industries, you have concentrations of processes of moving goods from manufacturing or extraction to the final consumer.
“Those markets need to be opened up to stimulate the growth of small businesses and also you need very vibrant, localised, original pathways to market access that can help more people starting businesses to succeed. We don’t have a want of entrepreneurs in South Africa, we have a want of targeted state intervention that can enable success in the market.”
The chair of Social Security Systems Administration and Management Studies at the University of the Witwatersrand, Alex van den Heever, said the potentially most effective proposal in the DA’s economic policy document was the ending of cadre deployment which was “critical” to establishing capable public organisations.
“Without removing political appointments, our public organisations will remain vulnerable to capture, with knock-on effects for the entire country,” Van den Heever said.
However, while the removal of cadre deployment is central to the state’s rehabilitation, he cautioned that there will be a backlash from vested interests who have become dependent on the abuse of state resources.
“This will be the most resisted area of reform, with some political parties relying on patronage and public revenue streams as a means for their illicit survival going forward.
“These include the governing party and many of the fragments, or former factions, of the ANC now competing as separate parties,” he said, adding that the second most effective proposal was the focus on job creation as an outcome of the economic growth strategy.
“While this is a complex undertaking, it relies on restoring South Africa’s public infrastructure without state-led corruption. This will have the dual effect of catalysing employment through effective investment expenditure and re-establishing an enabling environment for private industry to flourish,” he said.
Economic growth has faltered since 2007, largely due to bad governance, Van den Heever said.
“Turning the economy around is central to the achievement of two objectives. First, restoring adequate incomes to households and, second, establishing fiscal space for social programmes necessary for social cohesion. Growth strategies go hand in hand with redistributive strategies … If growth falters, so does support for the structurally disadvantaged.”
He said the proposals regarding social security had “many positive elements”, including income support for pregnant women and the emphasis on improving social work services. However, he disagreed with the conversion of the social relief of distress grant into a job-seeker’s grant.
“The implementation of conditionalities on grants with such low values is counterproductive and will harm those in need of basic income support. Instead, unconditional income support should be coupled with facilitated access to re-skilling and work access programmes,” Van den Heever said.
He said there are broad similarities between the DA and ANC’s economic policies. However, the ANC’s approach is premised on capturing state and private sector resources using state power.
“I see the DA’s strategy as broadly enabling on purpose, while the ANC seeks to control and, arguably, throttle. The problem with the ANC’s strategy is the resulting concentration of state power in the hands of a few political actors invariably leads to an abuse of power — with the private interests of the political elite trumping the public interest at every step,” he said.
“There is very little chance, for instance, that the ANC’s approach, which has been in play for 30 years, will result in outcomes different to what we have experienced for 30 years.
“The DA’s approach, in broad terms, is therefore, considerably more promising and can lead to vastly improved economic and social outcomes. Successful strategies for economic growth must seek to enable, rather than control and frustrate and, importantly, ensure that public resources are used effectively.”