SA’s new coalition challenges
As others heatedly debated policy issues, President Zuma would often be seen chuckling. For the crony set, such debates provided valuable diversions as they advanced their narrow interests. Yet creating a viable patronage network requires financial acumen as much as it does political savvy.
Zuma benefited from his political cunning being underrated but he, as well as many others, failed to appreciate how policy missteps would trigger an economic avalanche. Now, it is the various factions rising up against rampant corruption that are underappreciating how policies must be broadly revamped to resuscitate the economy, and how this will require unusual coalescing on grand scale.
Too many of the issues which served as useful diversions were poorly decided. The resulting problems now threaten all factions, including the cronies.
SA closed out 2015 with the shock of an aborted attempt to place a pliant light-weight in charge of National Treasury. This spawned a coalition of CEOs actively supporting a finance minister at odds with the president. It is hardly surprising that this alliance was never able to cobble together a compelling growth plan. Serious policy pivots are required and the Gordhan-business coalition lacked a meaningful political constituency.
There is little chuckling today as various coalitions are in disarray. Meanwhile, commentators wishfully draw comparisons with Brazil, where corruption allegations brought down the president. The more appropriate reference is Venezuela. In that richly endowed nation poorly organised resistance by a splintered opposition has not persuaded the dominant political party to either abandon its destructive policies or remove its corrupt leadership.
Affluent South Africans are, by themselves, politically impotent. The rich and the poor need to align politically to avoid economic perdition. The cronies are doing their best to discourage such an alignment prospects through packaging the appeal of redistribution using memes such as “Radical Economic Transformation” and “White Monopoly Capital.” Their efforts are assisted when “privileged” protesters brandish placards suggesting indifference to the plight of the poor.
SA’s new finance minister will not quickly find his stride. Rather he will stumble while household budgets contract. What must now greatly concern Zuma’s public relations advisers is how the condemnation of corrupt practices by religious and other civic leaders is undermining the effectiveness of politically controlled news outlets to shape perceptions.
Religious and other civic leaders now need to explain to their constituents how past injustices are routinely used as a smokescreen while cronies entrench their privileges at the expense of the poor. Key principles must be expressed in ways invulnerable to public relation countermeasures. For instance, as with the theft of copper cables, each rand acquired through state-capture is typically accompanied by hundreds of rands of damage, leading to declining jobs and services.
History is very clear that the political influence of weekly congregational gatherings can be formidable. The fall of the last major empire, The Soviet Union, can be directly traced to the inspiration and courage of a Polish bishop - who subsequently became the first non-Italian pope in four centuries.
There is a massive difference between redistributing tax revenues versus politicians manipulating pension assets. To use a farming analogy, once a harvest has been distributed thus ensuring the community is well-fed, seeds need to be stored for the following year’s planting and adequate provision made against the possibility of next year’s crop failing. Only then can the remaining surplus be bartered to improve future productivity and current life-styles.
SA’s political leaders tend to eye the nation’s substantial assets without grasping how quickly they can be impaired. Nor do they appreciate how the country’s obligations and liabilities, including a massive number of government reliant households, are expanding. There is little recognition that the economy has entered a prolonged stagnation phase which cannot be remedied without a wholesale shift in policy.
RET is not about redistributing surpluses. It is centred on who gets to make the management decisions and the plan is to redirect ever larger portions of seeds from planting to current consumption. Consumption, work, and investment must be balanced. The world’s richest person built a huge company and he now works very hard to alleviate diseases and poverty. Bill Gates understands that giving people food or clothes is far less effective than investing to create opportunities. As the world’s best investment manager, Warren Buffett’s successful decisions have created millions of jobs. This would be true whether he had been investing his own money or managing a large pension fund.
Historical inequities must be redressed across SA’s economy. But RET is shorthand for the state owned enterprise model where the politically connected are put in charge and live lavishly while undermining the nation’s potential.
As recently updated forecasts clearly imply, by the time of the 2019 elections, SA’s per capita income growth will have stagnated for a decade. Pain was postponed - yet ultimately amplified - by increasing household consumer debts while exhaustively pursuing redistribution. Even in business circles there is a lack of understanding that: SA’s consumers lack the purchasing power to adequately lift the economy and that the economy cannot be fixed through government spending or make-work investment programmes.
The country’s various factions have marched themselves into a cul de sac. SA’s household incomes can’t grow without both purging corruption and developing policies to compete successfully on the world stage. The way forward must include broad agreement in the shifts in policy necessary to support a powerful growth model. Communists, unions, populists, and business CEOs have different ideas about many things but their interests align around the need for high growth which is sustainable and inclusive.
It was only in 2015 that the depths of SA’s patronage network came into focus with RW Johnson’s, “Will South Africa Survive.” Similarly, the country’s various anti-corruption factions must now quickly come to understand the limits and dangers of excessively relying on redistribution. There must be far greater acknowledgement of the need to forge a politically robust coalition where factionalism gives way to collaboration-led growth. Waiting until 2019 won’t do.
Shawn Hagedorn is an independent strategy adviser