The Mail & Guardian initiative to encourage economic debate is very welcome, if not long overdue (“Economic policy battle lines draw”, April 9 to 15). It is also correct in arguing that there is a clear distinction between positions taken by “the disciplined left” and the “orthodox right”, though I believe that, currently, this difference is taken less on ideological than pragmatic grounds.
The reasons for the differences are twofold. First, it is finally clear that the years of austerity budgeting and monetary and fiscal discipline have not fundamentally altered the condition of the poor. Second, the global financial crisis has caused substantial rethinking about the essentials of neoliberal economic orthodoxy, as was indicated by the series, “The Crisis of Capitalism”, in the Financial Times. If economists globally are calling for a rethink, South Africa can hardly abstain because our needs are so much greater.
Fortunately there is a certain ferment of ideas and positions in the ANC and its partners. Lines of difference have not been drawn too rigidly on a broad strategy, even if there is considerable agitation around more narrow issues such as inflation targeting.
I have some ideas to offer that have emerged from a recent series of seminars, though there has been no consensus. To summarise them:
Let us assume that a “developmental state” is constructed, one able to harness substantial finances that could be used as concessional capital for investment. It could choose to direct this to productive sectors in the real economy, recognising that the value chain goes way beyond mineral extraction and the manufacturing industry.
The productive sectors would be incentivised to focus primarily, but not exclusively, on the domestic and regional market, with the added impetus given by a strong local procurement policy. None of this would work without major reform and reskilling in the public service and public institutions as well as the private sector.
To ensure that the process included the widest possible participation, social capital in all its forms would have to be mobilised and capacitated. Arguably, without that, growth will continue but it will not be truly developmental. It is also essential that the process is not undermined by excessive caution in government and by private-sector rent-seeking. The financial sector would have to be subjected to close scrutiny and regulation.
There is evidence of strong resistance from the private sector to invest in productive sectors beyond mineral extraction. Also, there has been a very significant shift abroad by some of the major corporations and a continuing leakage of capital to other countries.
At the same time the development finance institutions have not been recapitalised for decades and have therefore adopted conservative investment policies to sustain their capital base. Although there is a persistent refrain about the low level of savings available for investment, the Public Investment Commission, which depends largely on government pension funds, invests mainly in stocks and shares.
The proposal that a portion of these funds be directed into productive sectors is on the table. It is likely to elicit opposition from those who believe that caution in macroeconomic policy is the most important matter for a small economy in a turbulent and volatile global financial environment.
There has been considerable debate about what we mean by “productive”. One view is that our manufacturing industry has been seriously eroded and this must be remedied urgently since it is the foundation of wealth creation. Industry also has very significant multiplier capabilities. We have to overcome the present dependence on mineral extraction without losing the foreign revenue it brings.
Another view is that the manufacturing industry is less important in the present information age and that the wider services sector is able to boost employment far more rapidly. Adequate recognition needs to be given to investment in that kind of productive arena.
Yet another view is that without the capacitation of the whole of society no amount of investment in special areas is likely to create a stable, successful society. However, since we cannot do everything at the same time, where do we start? And how do we sequence available capital?
Local procurement promotes local manufacturing industry and the related downstream activities. It grows employment and therefore demand. It impacts positively on the trading account. It also boosts national pride and confidence, important elements in building a democratic developmental state. There is a danger that it leads to higher prices for consumer goods, especially if the policy brings in higher tariffs for imported goods. There is also the problem of coordination across the region.
There is abundant evidence that the public service and some public institutions are performing well below the desired levels. Many areas operate in a bureaucratic manner and provide shoddy services. There seems to be a major skills deficit and insufficient commitment to transformation.
Traditional African societies had enormous social cohesion with some residual manifestations and loyalties. Also, during the struggle years political and labour movements as well as civil society formations built a powerful sense of solidarity — much of which remains intact. However, these attributes are not being adequately mobilised for development.
Yet many social theorists argue that trickle-down economics does not work and what is required is national mobilisation of human and social capital for sustainable growth and development. How is this to be done?
There is also evidence on the scale of financialisation and rent-seeking at the expense of investment in productive assets. New research is unfolding on the consequences of these tendencies for the real economy, especially because it is accompanied by high levels of collusion between a relatively small cluster of corporations. Some of these corporations also impact on the agricultural system, and on the food value chain, raising consumer prices. How to curb these phenomena is one of the most serious challenges for government.
The essential point is that the structure of the economy has remained unchanged for a long time and the beneficiaries remain a small cluster of corporations and individuals. The result is growing inequality, severe unemployment and unacceptable poverty. This condition is not sustainable and is not what the forces struggling against apartheid had in mind.
So what should be done? With which resources? In what priority? And in what sequence? And by whom?
Professor Ben Turok is an ANC MP