China pivots, SA twists
Astute policy making is trumping manufacturing prowess as the base ingredient for raising a nation's prosperity. Political legitimacy and economic performance have become inseparable. This helps explain why analysts and commentators now frequently refer to a country's “political economy” and why SA is gripped by uncertainty.
As the natural tendency is for ruling elites to favour their core supporters at the expense of the general population, effective governance is elusive unless political leaders are held accountable for advancing the “common good”. China is the exception which proves the rule. While its leadership is not accountable to the broad populace, the Chinese Communist Party's legitimacy hinges upon economic growth and responsiveness to social needs.
It has always been difficult for countries with agricultural or extraction based economies to constrain favouritism as the governing elites simply capture strategic “economic rents” through controlling land and mineral rights. Such favouritism, frequently termed, “patronage”, was universally unfettered prior to the industrial era.
SA's current growth trajectory, in part reflecting China's 2015 economic restructuring efforts, has now dipped to the point that taking big risks to spur economic growth is safer than trying to maintain the status quo. However, the shifts which offer the most potential would tread on, if not trample, political loyalties.
The 1978 pivot of China's political economy was as dramatic as SA's 1994 transformation. China aggressively reinvented its economy while indefinitely postponing meaningful political reforms. Conversely, SA radically altered its political dispensation yet its policy-makers continue to avoid the economic shifts which are as essential as they are difficult.
SA has never demonstrated the capacity or commitment to design and implement a broad and sustainable upliftment strategy. This core reality has been masked in the 21st century by China's demand for commodities coupled with SA's domestic consumption having been unsustainably elevated by excessive consumer indebtedness – particularly among those vulnerably transitioning from poverty to lower middle class.
Continually increasing reliance on redistribution focused policies might be morally justified but the point is fast approaching where it becomes recklessly unworkable. Redistribution cannot substitute for upliftment yet it provides an ideal cover for advancing patronage.
China's economic restructuring should be seen within a historic perspective. While China has experienced extreme ups and downs, it arguably became the first modern nation state centuries ahead of European contenders.
The key measure of a modern state is avoiding kinship or patronage based alliances which direct the powers of the state to serve narrow interests. The West's remedy was to hold leaders accountable with constitutional democracy tools while the Chinese began far earlier and they developed a cultural model. The country's so called “one-child policy” would be politically impossible for most governments but it is not at odds with China's traditions.
As chronicled in a recent book by political theorist, Francis Fukuyama, China's centralised government is a product of hundred of wars, over thousands of years, leading to great respect for administrative capabilities. Nearly a millennium ago, China's administrators would identify promising ten year old boys who would be permanently separated from their families and raised to serve the state in distant provinces. Castrating them further excluded family alliances intruding upon state loyalties.
Given China's public administrative capabilities reflecting its history as a unified, largely mono-ethnic country, tracing to 221 BC, its leaders can drive bold policy reforms. The ANC's legitimacy derives from an electoral majority in a country where the majority has been voting for 21 years.
SA's core political economic challenges were framed within the twenty years between diamonds and gold being discovered. During this time the world's most impactful engineering marvel was completed. The Suez Canal set the stage for the East and the West congealing economically while reinforcing SA's geographic isolation.
Virtually all prosperous societies escaped widespread poverty through trading or manufacturing. China's pivot was all the more dramatic in that it combined the two just as the industrial era was about to be eclipsed by the information age. During this key global shift, SA's focus remained inward as the sanctions era morphed into today's anti-western, pro-BRICS, stance. Competitors are feted while key customers are needlessly antagonised.
It is not that SA's political economy is broken. Rather, it has never served the interests of the broad populace and now prolonged stagnation threatens desperation. As necessary as SA's political transformation has been, it is not a substitute for broad upliftment.
SA is an exceptionally isolated country endowed with vast natural resources and large representations of African and European tribes whose overlapping histories mix confrontations with oppression and awkward alignments. The country's current political-economic problems are immense due to a long and on-going history of managing difficult policy choices poorly.
The 1990s political transformation avoided a blood-soaked civil war. But it is now much clearer than even a year ago that the economic legacy bestowed upon most of those born free is received amid forlorned hopes. As a consequence, SA's political foundations, the constitutions and its various institutions, already under threat by political elites, risk rising assaults from youthful challenges.
SA's most senior political leaders did not grow up with an affinity for constitutional democracies as apartheid was perpetuated and enforced through constitutionally styled procedures and institutions. People favour their own cultural traditions. However, traditional political structures entrench poverty in resource endowed nation. They narrowly entrench privileges through promoting kinship and patronage-inspired alliances. Education and opportunities wane while institutions totter as resentments percolate.
China's public administrative capacity was the driving force behind much of the world economy's growth over the past fifteen years with rising commodity demand being a core transmission mechanism. As that era is now ending, it is becoming obvious that the annual GDP growth rates of many commodity exporters were grossly misleading indicators of their underlying economic health.
Talk of improving productivity and competitiveness was seen as hate speech by members of the Tripartite Alliance, the base of the patronage pyramid. It should now be clear to all that such objectives always needed to be the focus of SA's political economy – along with investing in people and encouraging business investments.
Policy paralysis reflecting patronage politics substituting social grants for careers is hardest on those with their entire lives ahead of them. Notwithstanding formidable, though withering, merits, routinely blaming apartheid is losing political resonance as those born free confront barren prospects daily.
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If SA's political economic challenges pose such a severe threat to the country's future, why is there not an intense outpouring of clashing ideas from various sectors of society? There are many factors such as how the longer-term trajectory seemed to be considerably more positive only a short while ago. There is also the consideration that economic development strategies are madly difficult at the best of times while many of the most promising options are not easily blended with transformation and redistribution objectives – let alone, patronage building exercises.
Further consider how having unions and communists central to the ruling party core alliance serves as a highly effective bulwark to external recommendations. Their anti-business and anti-western ideologies run so deep that considering how interests ultimately align is precluded. If the political strategy was to frustrate challengers, this was clever. Yet, from an economic management perspective, this amounts to deriliction of duty.
President Zuma and his inner circle have been executing a seemingly effective political preservation strategy through creating a huge combination of patronage-enriched and patronage-dependent supporters. Much consideration has been given to how a political environment structured around provincial electioneering can be managed to narrowly entrench power.
What has become extraordinarily critical, in a world economy constrained by inadequate final demand, is discretionary income. Most of the world's discretionary income remains concentrated in the West.
What Zuma and his closest allies have gotten hectically wrong is over reliance on China's demand for resources. The decline in commodity prices along with SA's consumers being deeply over indebted means there will be far less patronage to spread around. Patronage funding, from social grants and civil service pay raises to sweetheart deals, will crowd out infrastructure spend, thus further limiting growth prospects.
Zuma loyalists are well placed for how the upcoming political battles would normally be fought. The nation's modest growth trajectory reflecting imprudent over exposure to China's economy has however left them far more vulnerable than they would have anticipated even a few months ago. Volatility looms.
Shawn Hagedorn is a strategy advisor.
This article first appeared in Business Day.
