Lessons for business, the state, labour

The new South Africa is 21 years old. Given the modern expectation that countries should last forever, that is still very young. However, especially considering the power of compounding growth, two decades is enough time for some countries to have seen profound changes in their economy if their government has created an enabling environment and can execute stated policies.

What could reasonably have been accomplished and what needs to be done in the future are therefore extremely relevant questions for South Africa. As the “born-free” generation matures, meeting and managing expectations will only become more important.

Of course, the burden of the past continues to weigh on South Africa. We describe what some countries, which also faced significant burdens from the past, have nonetheless achieved in two decades. No country can follow the same path as any other, but these examples show the great potential of South Africa if the entrepreneurial energy lurking is unleashed. At the same time, the record of the last 20 years serves as a warning of how little economic gain will be achieved if an enabling environment is not established.

The table above shows what some countries have done in 21 years after political transition (in South Africa’s case) or after independence for Botswana, Malaysia, Namibia, Zimbabwe and Singapore. The same time span is used for Vietnam, starting in 1984 because that is the first year for which data is available after the chaos of the war and communist rule. The indicator is gross domestic product per capita in constant 2005 US dollars, a basic measure of how fast the economy has grown, accounting for population growth.

South Africa has had, at best, mediocre results in terms of growing its economy since Nelson Mandela became president, expanding the pie by about 30% over 20 years. As a result, there has to be a significant reliance on redistribution for the majority to benefit.

This is a difficult exercise given the constraints of how economies work in the real world, in addition to the self-imposed restrictions on economic agency that the ANC agreed to as part of negotiating the peaceful transfer of power. South Africa has done better than Zimbabwe did in its first 21 years, suggesting that the pressures to engage in the kind of radical, self-destructive behaviour of the Mugabe regime are not yet present in South Africa.

Still, it is telling that other countries have done so much better and that the results after two decades, given the power of compounding, begin to have real implications for national futures and for the possibilities of individual citizens.

Namibia, during its first 21 years, increased its economy per person by about 50% and therefore has made considerable gains on South Africa, even though Windhoek also had to confront weighty challenges of reconstruction and ecology after independence in 1990. Botswana’s experience of growing its economy more than five-fold when at independence it had essentially nothing, including almost no paved roads, shows the transformative power of sustained effort over time.

The Southeast Asian examples are even more dramatic. Despite Vietnam emerging from a highly destructive war and strict communist rule, it managed to increase its economy, even accounting for population growth, more than one-and-a-half times. Singapore, despite being little more than a swamp and having been expelled from Malaysia in 1965, managed nothing short of an economic miracle in its first two decades. Malaysia also managed to significantly increase its economy in the first 21 years, establishing the foundations for its rise in the international economy – despite being an economic backwater in the 1950s, and one that decided expelling Singapore was part of a rational economic policy.

Today, there are choices for the South African policymaker and the public. With current levels of unemployment and related political militancy, coupled with questions about fiscal sustainability, muddling through is not a long-term option.

The ANC has a legacy of being able to transform its policy views when required. In particular, when Mandela was released from jail he was committed to a set of socialist economic policies, which in the 1990s would have proven disastrous to implement. Mandela, as one of the great men of principle, would undoubtedly have tried to implement the policies that he believed in during the 1960s when he left jail after 27 years.

Yet he was persuaded by the evidence that his beliefs would have been terrible for the country and therefore for the ANC. He then heroically switched to a new policy framework that has allowed South Africa to enjoy considerable macroeconomic stability and at least create the jobs that it has. Mandela shifted course radically enough to allow the new South Africa to emerge.

It is not necessary for the ANC’s current leadership to make a shift as great as Mandela did in the early 1990s. He upended decades of ANC rhetoric and made real concessions to whites that had not been imagined during the struggle years. Indeed, the change in focus and policies that we suggest are aimed at realising the historic mission of the ANC to deliver both political and economic emancipation.

Moreover, a policy-led change towards a healthier economy and society is also, as is intimated above, good for business and for workers. Growth makes it much easier to solve development problems and address historical legacies.

Our in-depth examination of how South Africa really works has convinced us that there are a large number of steps that government, business and labour can take now to address the challenges that South Africa is facing before it is too late. None of these steps are easy and there will always be short-term reasons not to start implementing them. But the nature of the crisis facing South Africa requires a comprehensive response from all concerned: government, business and labour.

The government needs to change rhetorical and administrative tack to focus on employment at all times. Its departure point should be: Do these actions promote employment?

Given South Africa’s circumstances, business also must respond, just as some of South Africa’s best entrepreneurs have, by investing and creating enterprises that can become globally competitive. Business must be conscious that part of its long-term strategy to thrive in South Africa should revolve around a calculus that firms, too, can take actions beyond what a short-term reading of the profit sheet demands.

We have seen that some employers are able to develop good relations with their employees by paying more and devoting attention to their communities. Other companies have built up trust by investing in their communities. Still others celebrate their job creation. They do so not out of charity but because these actions, if there is an enabling environment, are good business.

A better relationship with government and the development of trust with the ANC demands improved confidence so that long-term business actions can be aligned with the national interest. To date, the necessary courage to create this symbiotic relationship is often in short supply.

Substituting an environment of confrontation with an agenda for competitiveness also demands labour playing its part. Serious countries intent on transformation and expanding the economic pie through growth do not have five-month long strikes. Labour has a crucial role to play in building the political consensus on growth and transformation that is lacking in South Africa.

We recognise that without racial transformation of the South African economy, political peace is going to become ever-more difficult to maintain. Indeed, “transformation” has become the label for the extension of the liberation struggle post-apartheid, beyond politics into social and economic change.

Transformation should not, however, be defined only by land ownership or business equity. The transformation agenda must be reimagined to demonstrate that all are encouraged to participate by having a job and the ability to participate in an economy that is growing. This is of particular relevance to labour. Economic transformation is the best route to address the final liberation: freedom from poverty.

Jeffrey Herbst is the president of Colegate University in the United States. He is on the advisory board of the Brenthurst Foundation, of which Greg Mills is the director. This is an excerpt from their new book, How South Africa Works – and Must Do Better, published by Picador Africa

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