John Milton Keynes said: “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
This is well illustrated in two recent articles about the economic development department in the Mail & Guardian that reveal preconceived and rigid ideas on economic matters – ironic given the newspaper’s vocal (and correct) promotion of media freedom and diversity of ideas.
The first article (“Over-zealous state”, May 4) reported on the perception of David Lewis, former head of the Competition Tribunal and recently a consultant to private company Kansai on a competition matter, that the department and ministry had been interfering in competition matters.
The other (“Who’s in charge?”, May 11) argued that there was something inappropriate about Nobel laureate Joseph Stiglitz’s membership of the department’s economic advisory panel and rubbishes his contributions to the economic policy space.
I would like to bring some facts to bear on the two pieces.
The department was set up to promote the co-ordination and integration of the actions of public entities to achieve the goal of jobs-rich growth and wider development. As such, it will engage actively with public entities whose mandates cover matters in this remit.
Our competition authorities operate in terms of the Competition Act, which is not a conventional “anti-trust” law as developed in the United States about 120 years ago.
Even a cursory reading of the Act shows that it seeks to achieve a distinct set of developmental goals, not only increased competition. It does not rely on competition fundamentalism, but recognises the important balance that is needed in a modern and dynamic economy between the sometimes competing demands of jobs and competition, consumer and producer interests, and the role of the competition authorities and the executive authority of the minister.
The Act requires the competition authorities to consider the impact of proposed mergers and acquisitions on specified public interest criteria: employment, the impact on industries and regions, small business and black economic empowerment.
The Act defines the minister’s role, including participation in the proceedings of the competition bodies. The minister is constitutionally bound to make use of the power set out in the law when a merger raises public-interest concerns of the type envisaged by the Act that cannot be addressed otherwise.
Three ministers intervened in the Walmart matter. Economic Development Minister Ebrahim Patel was joined by Trade and Industry Minister Rob Davies and Agriculture, Forestry and Fisheries Minister Tina Joemat-Pettersson, whose mandates were affected by the transaction.
The tribunal process
They made representations to the tribunal and the Competition Appeal Court. Both institutions acknowledged the legitimacy of their concerns and the tribunal found that the documents requested by government and the evidence of its witness “was of benefit to the tribunal process”.
But there is a bigger matter: too often commentators on these issues demand a coherent and effective state while making regulatory independence an end in itself.
We are told to improve alignment across government and at the same time avoid influencing any decisions made by the army of commissioners and agencies employed to act for the state. Attempts to do so, even if mandated by the law, are dismissed as “interference” or micromanaging.
But avoiding inappropriate intervention (for instance, on matters not mandated in legislation or for personal enrichment) does not mean that there can be no engagement between agencies and the executive, or that state agencies should somehow be free from care for national policies and interest.
Ministers and officials cannot just sit back and let agencies entirely take over the practical business of economic governance. Ultimately, it is the government that is accountable to the South African public.
In recent years, the competition authorities vastly increased their impact by aligning their interventions strategically with developmental aims. They concentrated on ensuring competition in wage goods, infrastructure and core intermediate inputs, improving living standards and economic efficiency. The benefit of this is seen in practical terms in remedies for construction inputs, food products and fertilisers.
In the Pioneer Foods case, the Competition Commission reached a settlement on issues related to maize and wheat milling, baking, poultry and eggs – critical products for both food security and inflation. Pioneer agreed to reduce flour and bread prices and increase its own investment by R150-million. A share of its fine went to establish a R250-million agroprocessing competitiveness fund to support new entrants, investments and agricultural research and development, which will increase industrial capacity, jobs and competition.
The innovative settlement was hailed by the Global Competition Review, which nominated the commission in the category enforcement matter of the year.
On Walmart, the ministers raised concerns that the merger could negatively affect local jobs in suppliers, small businesses and labour conditions in retail. They did not seek to improperly influence the competition authorities and no such allegations have been made.
Rather, they exercised their statutory right to participate in the proceedings and formally submitted their position with evidence to back it up, including expert testimony, to good effect – 500 workers were reinstated and the size and terms of a proposed R100-million fund is now subject to comment from a panel of experts.
The record of the competition authorities over the past two years speaks for itself. We have seen both increasing effectiveness in ensuring a competitive economy and a growing ability to support the public interest, especially in terms of economic development and support for smaller companies.
The article about Stiglitz fails to understand the role of the department’s economic advisory panel and highlights the extent to which commentators are subject to a narrow set of ideas, ignoring the profound global rethinking by policymakers and academics following the financial crisis and recession.
The panel consists of eminent economists from the private and public sectors as well as academia and is constituted to get fresh ideas and expertise that would not normally be found in one department. A particular strength of the panel is that it brings together experts to reflect not on the simplistic ideological divides that so often dominate economic debates in much of the press, but rather on the more nuanced and difficult question of how to achieve our mutually agreed aims.
Stiglitz is a distinguished adviser: he has been chief economist of the World Bank, is president of the International Economic Association, received the Nobel Prize for his technical work on market asymmetries and served as adviser to many governments, including to former United States president Bill Clinton.
The article lauds the work of the Harvard Group, notably because its work was “based on detailed and locally centred research” and seeks to contrast this with Stiglitz’s view of the South African economy.
The Harvard Group
Although one can take issue with this assertion, it is worth noting that the Harvard Group came to fundamentally the same conclusion: one of the biggest challenges confronting the local economy is currency overvaluation and volatility – and it requires active interventions to address this. Interestingly, the two lead economists of the Harvard Group recently signed petitions supporting the use of capital controls as legitimate and necessary policy instruments.
The rallying cry to focus on “detailed and locally centred research” is glaringly absent in the M&G‘s coverage, given the narrow pool of economic commentators it draws on. It is odd that a newspaper that has stood up for the free press on numerous occasions appears to want to narrow the space for a free discourse on economic policy in favour of self-imposed group think.
How can we improve our policies if we repress debate and discussion?
Saleem Mowzer is acting director general at the economic development department