The new hands-on state

The next government of President Thabo Mbeki is likely to intervene much more in the South African economy in an attempt to tackle the stubbornly high unemployment rates and persistent poverty marking the start of the country’s second decade of democracy.

As the first 10 years of freedom end, the country faces a delivery dilemma, with joblessness and related poverty emerging as the chief concern of its citizens. Unemployment is stubbornly high, at an expanded rate of 40% of the working age population, while some studies have put the poverty rate at 49% in 2001.

”There has to be one economy for one nation,” said government spokesperson, Joel Netshitenzhe. While the country can trumpet its political and macro-economic stability, the gains have not filtered into the ”second economy” — where the majority of poor, black South Africans live.

The problem of a dual economy — one white and wealthy and the other black and poor — is the key prism through which the African National Congress has assessed itself in its own report-card, called Towards a 10-year Review.

The report clearly indicates that the government has decided to bridge the two economies by using its economic and political muscle to kick-start both the economy and the social development of the country. However, the 10-year review does note that in a globalised era the nation state is limited by ”varying forms of global licence”.

This is a sea change in government policy and one which Mbeki began signalling in his State of the Nation address two years ago.

From 1994 the party ran a hands-off government, particularly in economic management. Job creation was held to be largely a function of the market, with the state’s role one of creating the liberal framework through which business confidence would be generated and investment garnered. Until three years ago, the government’s enthusiasm for state-sponsored black economic empowerment was lukewarm.

But as the jobless statistics remained stubbornly high and private-sector capital investment persistently low (though business says it’s now rising), the government’s tune has changed.

It began changing in 2001, when the essentially free-market economic policy called the growth, employment and redistribution strategy (Gear) was acknowledged as a ”necessary but not sufficient” framework to generate growth at the levels required to dent poverty. In that year, Mbeki put Black Economic Empowerment (BEE) at the top of the economic policy agenda. Last year he promised a BEE Act in a year, and this year the law is in force. Arguably, it is now the pinnacle of economic policy.

The financial and mining sector BEE charters (among many others) have been implemented, signalling both the primacy of empowerment and a stronger state hand. The charters alter mining rights and ownership; they will extend banking services (and capital) to the poor, while also quickly generating a black managerial class. Such intervention would have been unthinkable in 1994.

On job creation the pattern is the same. The government is splurging an unprecedented R45-billion on its expanded public works programme over the next five years.

Freedom has to impact more meaningfully on the people in the second economy, says Netshitenzhe. ”If you do not bridge the chasm, both sides face a very bleak future.” But he stresses this does not entail macro-economic changes: low budget deficits; inflation targeting and a manageable level of debt are ingrained policy, he says.

This stance is apparent across other areas of policy as well. Whereas Mbeki was the president who finally gave South Africa a privatisation (or ”restructuring of state assets” as it is officially known) policy, he now sees another role for the parastatals.

It is likely that Eskom, Transnet and the unlisted portion of Telkom will be retained largely as is in order to use them as economic levers. Where stakes are commercialised or privatised (electricity distribution and smaller units of Transnet are in the pipeline), these are likely to be used as BEE levers. A stronger state is evident in health as well, where a raft of changes (the lowering of drug prices; licensing of doctors and compulsory medical aid coverage for the working class) is part of a renewed impetus to extend the social security system.

Over the next few years, and as part of the government’s plan to link the two parts of the dual economy, new policies will unfold. These are likely to include a focus on micro-credit; a skills plan to break the pattern of high unemployment and high labour market vacancy and an enhanced land reform programme.

The government’s change of tack is both global and local. Mbeki is a foreign policy president and his key project for the past two years has been public relations officer-in-chief for the New Partnership for Africa’s Development and the African Union.

While he has enjoyed great success with the northern powers keen for modern African leadership, he has also come face to face with anomalous trade policies and an inequitable global financial architecture.

Whereas in previous State of the Nation addresses globalisation was portrayed as an ineluctable process, now, in its assertion of the role of the state, South Africa is more closely following the model of India and Brazil, developing countries that are sceptical about unfettered liberalisation.

At last year’s World Trade Organisation round at Cancun, the Mexican resort town, South Africa sided with the G20-group of developing countries. Previously, it was criticised for operating outside the African and developing world conurbations.

Taken at face value in an election year, many of these changes may sound dramatic. But Mbeki is likely to phrase them simply as a change of emphasis in existing government policy. Much of South Africa’s success so far has been based on prioritising stability and predictability in its political and economic policies. With an overwhelming election victory almost certainly in the bag, Mbeki is not likely to risk the country’s hard-won success for a few quick votes.

What has been achieved:

We look back at the president’s previous State of the Nation addresses and track their successes and failures.