effect’
Madeleine Wackernagel reports on an unusual proposal to kick-start the RDP
Two years after South Africa’s first democratic elections there is a sense of economic inertia. Part of the transition problem has been building a new government on old structures; conservatism is deeply entrenched, in business as well as government.
Policy-makers are loath to upset the apple-cart of international opinion with controversial — but necessary — proposals for job creation and economic growth.
So says Dr Robert Zevin, an American economist with a long and abiding interest in this country in his capacity as director of the Fund for Democratic Elections in South Africa and The New World Foundation. He believes a radical re-think is needed before the impasse leads to stagnation and political instability.
The South Africa Foundation last week noted that with gross domestic product (GDP) growth of 4%, an annual rate of job creation of 0,5% in the formal sector, and 2 to 3% increase in the labour force, no dent in the unemployment rate was likely in the short to medium term. The foundation looked to the Far East for inspiration, favouring a low-wage, labour-intensive route to expansion.
Zevin, however, believes such a framework to be totally inappropriate to South Africa — a middle-income, medium-technology economy. What this country needs is a typical Keynesian kick-start; present fiscal policies are consistent with a high employment economy, not one with a 40 to 50% unemployment rate.
Government should spend R250-billion over the next eight years on the Reconstruction and Development Programme (RDP), satisfying the demand for job creation and service provision in one go.
Says Zevin: “Drastic problems call for drastic solutions. The private sector alone cannot create the millions of jobs needed by the year 2000, nor will it build all the houses and provide all the services.
“No matter how much legislation is implemented to make mortgage provision easier, for instance, companies will continue to invest in office blocks in Sandton; there is no money in squatter camps and private capital is return- driven.”
His premise is that once the accelerator effect has kicked in, with 60% of that extra RDP expenditure going on low-income labour, GDP will grow by a factor of R1,89, that is, every R1 spent will boost GDP by R1,89. This in turn will raise capital spending by businesses from 16% of GDP to over 25%. Growth will be higher and tax revenues will rise by more than the additional expenditure, bringing the deficit down sharply as a percentage of GDP.
The mere mention of adding to the budget deficit gives most economists sleepless nights. Any deviation from strict fiscal discipline would result in international opprobrium, capital flight and a collapse in confidence, they say. But present policies have done much to encourage short-term portfolio investment and less foreign direct investment, which creates jobs and growth.
South Africa’s situation is unique; there is no precedent for successfully overcoming a massive unemployment rate in a low-growth, middle-income economy. There are plenty of examples of burgeoning budget deficits and their disastrous effects, notably in Latin America, and these scenarios are invariably quoted to silence the Keynesians. But laissez-faire economics has not had a good run in the former Soviet Union and Eastern Europe.
South Africa should shrug off international opinion, says Zevin. Even local investors will buy government bonds if the returns are high enough; there is no need to seek approval or credit from the World Bank. Indeed, South Africa is perfectly positioned to implement its own “Marshall plan” in the region, extending credit to neighbouring countries, which in turn will buy our goods.
The unemployment problem cannot be ignored; the government must harness untapped resources of labour, raw materials and industrial capacity to set the economy on a 7 to 10% growth path. Trying to galvanise the private sector in this direction is tantamount to ants pushing an elephant, says Zevin.
The alternative, he believes, is to sacrifice all the gains of social transformation to economic failure. Instead of trying to cut the budget deficit to levels lower than most western countries achieve, South Africa must seek its own solution, capitalising on export competitiveness and economic autonomy on the African continent.