For whom has the tide turned?

We have turned the tide. Already the term slips easily off the tongues of journalists, analysts and party apparatchiks. One tries to imagine how the word forms itself in the dry, weary mouths of the unemployed millions. Perhaps for them it is pregnant with possibilities. Or perhaps it simply baffles them.

It could be that they look about them incredulously, searching for the blinding neon of “wanted signs” that signify an economy turning the corner. The tens of thousands being retrenched probably spit the word out the way you might something that is off or venomous. Yet, we have turned that tide. So we are told.

None of the people expressing this sentiment — neither the president, who told us this, nor the corporate economists, who enthusiastically agree — offer any positive projections on the economy’s ability to create jobs. They nod their heads in appreciation of the wonderful legacy of fiscal prudence and the glorious future of a slightly expansionary policy — nothing too brave, you understand.

Though no one suggests that the policies we have in place are even remotely capable of achieving growth of between 6% and 9% — levels we need if we are to fight unemployment — the tide has turned. Though we sit on a mountain of long-term savings and billions in deferred investment, even as the level of domestic investment remains insufficient to achieve the kind of growth that has a social impact.

This is not surprising. After all, for some, the South Africa economy is not in recession. For some, the performance of the economy in the past three or four years may not have been ideal, but it has been acceptable. The fortunate elite have been rewarded handsomely, not only through the joys of inflation-adjusted wage increases and bonuses, but through the more than R50-billion in tax cuts. For some the country has been growing steadily, while others have been living in a recession that has turned into a depression.

Joseph Stiglitz, the former chief economist of the World Bank who for more than six years has been rewriting the assumptions of the market fundamentalists, once wrote: “The most important policy for socially equitable development is full employment. The unemployed are not just a statistic or an under-utilised resource that could have increased gross domestic product [GDP]. They are people, and no numbers can convey the degree of disruption that unemployment brings to their lives, their livelihoods and the well-being of their families.

“Although safety nets and targeted assistance may mitigate some of the consequences of unemployment, from an economic, political or psychological perspective, nothing is better than a job. Jobs are the means by which people participate in the productive economy and feel productive themselves. It is one of the most important sources of inclusion in the national economy.”

Any first year economics student will tell you that GDP growth is not an absolute measurement of economic progress. In fact, it is more useful for those economies closer to full employment. On its own, GDP growth is virtually useless for measuring progress in developing economies experiencing structural unemployment. This is for two reasons — both of which are applicable to South Africa. Firstly, GDP growth is rarely equitably distributed, unless there are clear government policy initiatives to ensure this. So you might achieve economic growth as well as a more rapid increase in inequality and poverty.

Secondly, GPD growth may not correct economic decline, but simply prevent further recession.

Yet, it has become commonplace in South Africa to measure our economic progress by comparing the GDP growth to that of developed countries. The private sector does this because ours is a country of two economies — one developed and one developing — and much of this sector has made it clear that it does not consider the developing economy a future market. The government does this because it cannot admit that the level of economic performance, coupled with unemployment and the legacy of woefully inadequate human capital, means adopting a much more creative economic policy.

Policy-making in South Africa refuses to acknowledge that the majority live in an economic depression. One policy failure is the refusal to entertain the idea of a basic income grant. When the issue of a basic grant is raised, we are told the poor must enjoy the dignity of work and not handouts.

Yet Stiglitz argues that “spending money on social programmes can be complementary to the macroeconomic and structural policies discussed above. In the crudest terms, expanded social spending can be a very effective way to engineer a fiscal expansion.”

For example, if a fiscal expansion is spent on physical infrastructure, then much of the money will be used to buy imports of capital equipment, blunting its expansionary consequences. Spending on social programmes keeps almost all of the money in the country, potentially leading to a larger output “multiplier”.

This is not to say one should not invest in infrastructure. The Stiglitz argument suggests that in a country where unemployment is endemic and structural, social safety nets can have a positive effect on the economy. Assuming a basic multiplier, the grant proposal would result in a minimum R45-billion injection into the economy. Certainly, there can be little argument that the grant would not have the same positive effect on the economy as tax cuts.

There are other policy failures that suggest a disturbing inability to accept the fundamental reality of our economic state. The promised micro-reforms outlined in last year’s State of the Nation address have yet to come to fruition. The Department of Trade and Industry was supposed to deliver an industrial strategy, but came up with a shaky export strategy policy that virtually admitted it could not deal with unemployment. It failed the test of Parliament and we have heard little since.

The department’s integrated manufacturing strategy was hardly ideal for job creation, but it is more disturbing that it has taken this long to return the document to Parliament — it was tabled in May. Given the deep structural deficiencies of the economy, including productivity, unemployment and poor levels of domestic investment, one would have thought that there is more urgency for micro-reform.

Similarly, the department’s response to a broad-based, developmental empowerment policy has been pathetically slow in the making. When it came, it said nothing. Yet micro-reforms are the kinds of policy interventions that could have a lasting material effect on the majority of people.

The challenge is for a less rigid fiscal policy and a truly ambitious micro-economic policy. This is uncomfortable for many in the private sector and a few in the public sector to accept as they believe the government has no business in micro-economic reform; we cling to the Washington consensus that limits the government to fiscal and monetary policy. Having adopted the idea of market efficiency and market fundamentalism, our government is afraid of policies that are thought to be interventionist and might scare away investors. Stiglitz has shown how during the East Asian crises the International Monetary Fund forced those economies to enact policies that traded economic strength for investor confidence. It is now widely accepted that the institution’s policy reforms exacerbated the crises.

The tide may indeed have turned, but for whom?

Itumeleng Mahabane is a freelance journalist, working on a book on the history of black business

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