Government wage challenges unite cronies and transformation beneficiaries
7 November 2019
Equitably transforming SA’s economy is necessary but this goal has been excessively prioritised to the point that neither the recent national election nor its aftermath could produce a workable growth plan. Efforts will now shift toward fixing government’s unaffordable wage bill. This will reveal how ill-conceived transformation policies and patronage have become mutually reinforcing.
Losing investment grade credit status reflects serious economic deterioration. If however, “at-risk factions” exploit government’s unaffordable wage bill by igniting industrial actions and rioting, SA’s prospects for achieving broad prosperity could slip very far into the future. This would constitute historic failure.
“At risk factions” include cronies and vulnerable beneficiaries of transformation efforts. Conniving cronies can no doubt imagine scenarios whereby mayhem undermines the Ramaphosa faction’s wobbling credibility to the point that his leadership can be challenged ever more aggressively. Ramaphosa’s political clout is already waning as he can’t devise plans to fix the economy or Eskom or SAA, etc.
Efforts to constrict government’s wage bill will drive union leaders and members to align with cronies. Avoiding lay-offs means meaningful savings would need to come from below inflation wage increases. The vast majority of SA households are either poor or heavily indebted. Excessive consumer debt loads, with interest rates much higher than inflation, helped spawn the recent bill providing debt relief.
Ramaphosa and Mboweni can’t work out how to constrict government’s wage bill without being ambushed within their party. Alongside the illegitimate patronage network is the larger - legitimate but misconceived - transformation network. Government employee earnings support families and stabilise communities while real earnings have been declining for many years across the economy. Further cutbacks would set the stage for aggressive protesting.
Details aside, SAA is the battlefield Ramaphosa and Mboweni should target. Not being able to make headway even there conveys a lack of executive capacity. Continued dithering as economic vitality steadily erodes will invite a new phase of crony adventurism.
To reduce the fiscal deficit, Ramaphosa and Mboweni must spend political capital. To get a return on such bets, they must improve household well-being. Rather, economic progress is advancing even more slowly than prosecution of corruption cases. This gives the cronies the time and opportunity to recruit support among those facing economic distress.
Ramaphosa and Mboweni have long been senior actors while SA’s policy making has never aligned domestic politics and global economics. This must now happen as they fend off inner-party rivals amid constricting fiscal wiggle room. The increasingly combustible risks can only be defused by, finally, confronting the underlying political-economic disconnects.
Expectations that democratic forces would reverse historic injustices underpinned the 1990s transition. The disparate elements of the ruling party gradually united around a shared belief in quotas and tenders to drive transformation. As long as there were options to direct vast government resources and regulatory powers, the political pressures to emphasise redistribution fed inward policy biases incompatible with high growth through global integration. Short-termism and cronyism won out over the long-term commitments competitiveness requires.
The next national election is a long way off while the economy is set to stagnate amid perilously compounding debts at the government and household levels. If SA was situated in, say, East Asia or Eastern Europe, this country’s excessively redistribution-focused policies would be checked by seeing neighbours plunge poverty. This has been common in recent decades through increasing productivity while thoroughly integrating into the global economy.
Transformation partially parallels patronage in that the ruling party gains support through having government favour some over others. The key difference, of course, is that transformation is fully justifiable morally, politically and socially. Yet, as there are mathematically inescapable negative implication to overindulging transformation, it must be subordinate to pursuing growth as it mustn’t undermine poverty reduction.
West Germany’s decision to integrate with East Germany was also a transformation project which required a morally desirable form of patronage - where one group is favoured. Importantly, favouring a geographic group is less politically perilous than race based patronage.
It is tempting to think that there are clear moral boundaries between transformation and patronage but SA has entered a phase which will prove this isn’t true. Efforts to address the unaffordable government wage bill will provoke an aligned response from those who benefit from patronage and transformation.
US voters choosing their congressional representatives are inclined to favour an incumbent with much seniority on key committees as this often leads to federal funds being directed to their local communities. This induces a soft form of geographic patronage which is unfortunate but not deemed troublesome enough to change the constitution. There are no perfect alternatives.
SA’s political structures lead to class and ethnicity being prioritised and party bosses being very powerful. This is inconsistent with high accountability. History books highlight the country’s injustices while its geography is defined by being at the bottom of a region still dominated by poverty and global isolation. All other regions are well on track toward abolishing large poverty clusters as global integration can profoundly reduce poverty.
SA was never going to achieve lasting political calm without pummeling poverty. Pivoting from ticking quota boxes to prioritising global integration is the path to broad prosperity. Time mustn’t favour the cronies.
Shawn Hagedorn is an independent strategy adviser at shawn-hagedorn.com