How politics blocks growth

Shawn Hagedorn says transformation policies have placed a formidable break on growth

The political dynamics that threaten SA’s future also drive the Eskom crisis. They are however, easier to grasp and harder to deny within the context of the national utility’s failings. The possibility of Eskom imploding, financially or operationally, highlights very real scenarios where the economy could quickly collapse. Considerable mineral wealth and significant pockets of prosperity guarantee nothing. 

The economics of providing an electrical grid are maximised through regulating a single provider, a monopoly. That is, market forces must surrender much influence to political forces. Such arrangements are highly vulnerable to political abuses. Market forces are not however silenced as they continually influence demand and the costs of alternative supply inputs. Energy politics and economics must also accommodate global dynamics and disruptive technology advances. 

Similar drivers shape SA’s political economy but perceptions are more malleable. Countering the injustices of apartheid is a political imperative with implications resembling monopoly economics. As effective policy making and regulations are key, this ties economic outcomes to the ability of politicians to resist indulgences. 

With Eskom and economic policy making, the ruling party has catered for the preferences of its alignment partners and cronies while resisting market forces, global influences and technological advances. Now, with both Eskom’s and the national economic crisis deepening, political voices are framing the debates as austerity versus anti-austerity. Such framing prevents the emergence of a workable growth plan.

If the underlying trade-offs aren’t acknowledged and framed appropriately, the huge portion of the population which is marginalised will grow larger still. The economy must be transformed but merit is a concept which, if ignored, precludes the economic dynamism necessary to eradicate the country’s massive, unsustainable and growing poverty burden.

The Eskom crisis shows that downgrading level-of-competency considerations in pursuit of racial quotas, means that for every “transformation beneficiary” there will be many people confined to a lifetime of poverty. Emphasising transformation and redistribution builds dependencies which are expected to entrench voter loyalties. However, the links between redistribution and growth are relatively modest whereby transformation policies have become a formidable break on growth.

When the current economic well-being and prospects of the median-income 20 year old South African is compared to their median-income counterparts in other regions, it is hard not to conclude that SA’s economy is dreadfully managed. This can’t change in the absence of a potent growth plan. 

Anti-austerity arguments which support redistribution programmes to benefit the poor enjoy some legitimacy. Conversely, using austerity-versus-anti-austerity framing to undermine the unpacking and balancing of transformation-versus-inclusive-growth trade-offs is hectically counterproductive.  

Lastly, that the ruling party is unlikely to produce a workable growth plan doesn’t mean they won’t support one. Such a plan would emphasise policy reforms to improve competitiveness and spur exports. The first step is to acknowledge the tradeoffs between growth and transformation.

Shawn Hagedorn is an independent strategy adviser shawn-hagedorn.com