No inward looking paths to strong growth
SA's political dialogues have become inward focused as life chances and daily drudgeries reflect - and are exacerbated by - past missteps. Blunders, such as Eskom's misadventures, put a tight lid on near and medium-term growth while Zuma era policies and practices undermine longer-term prospects. Yet adjusting to a changing global economy is no less essential than addressing internal setbacks.
Pretoria's distracted policy makers fail to accept that SA's economy places unendurable reliance on domestic consumption and exporting natural resources. By way of a mirrored comparison, China's leaders are diligently trying to overcome that nation's over reliance on manufacturing exports coupled with aggressive domestic fixed investments. Put simply, SA's economy includes too many overly indebted households along with too many unemployed people to unlock aspirations through emphasising consumption. Nor will commodity prices save the day.
Parents have favourite children and governments provoke patronage. The 1994 political transformation empowered the majority to hold elected leaders accountable but this hard-earned right has been eviscerated by historical loyalties and misplaced gratitude for programmes which were ill-conceived, poorly executed, or both. The ANC's grip on national power is electorally secure until 2019 while its ability to manage expectations is crumbling. The need for the economy to become competitiveness-focused is becoming more urgent and less manageable.
Today's economic era is defined by the rise of Asia and the shift to the information age. China, India and South East Asia account for nearly half the world's population and most of it's growth. These nations changed the world by aggressively integrating with wealthier, more advanced western economies. This fusion now creates enormous demands on politicians everywhere to enact structural reforms. Greece is media's sad poster boy in this regard as it appears hopelessly non-competitive despite having aggressively depressed wages.
Economically, SA more resembles the other misfit country which has been hogging headlines. As the 1990s approached, both Russia and SA had highly industrialised, diversified economies which, unlike the hard-charging Asian economies, were isolated from the most demanding consumers. High competence never translated into global competitiveness. Both countries underwent fundamental political transformations yet neither economy has ever significantly focused on producing goods and services for the world's top consumer markets.
Under Presidents Putin and Zuma both national governments have put patronage and bullying big business ahead of creating environments conducive to global competitiveness. Both have directed policies which doom their economies to, at best, low growth trajectories.
Not holding leaders of resource-endowed democratic countries accountable evokes muddled aristocracies. Charges of cronyism and corruption go unheeded. This is nearly the worst form of government in that elections convey false legitimacy while, unlike with most chiefdoms, monarchies or other aristocratic structures, there are no inheritance rights to encourage leaders to adopt a long-term focus. Rather, 'getting while the getting is good' prevails. Global economic pressures, however, ensure that heavy patronage biases will provoke increasingly dangerous policy trade-offs. This is the new normal for Russia and SA.
Aristocracies proved to be almost impossible to displace prior to the Industrial Revolution nearly banishing them by usurping the central importance of farmland. Then when the colonial era receded, if newly independent nations had abundant natural resources, they found they could accommodate aristocratic-type structures while maintaining the appearances of a functioning democracy.
Competitiveness-inspired broad prosperity was sacrificed as patronage systems evolved to entrench power while placating voters. Social grants cunningly benefit those in power by creating broad dependency on - ultimately unsustainable - programmes which are presented as benevolent gifts. Meanwhile most western and East Asian nations are prospering through hyper competitiveness and integration.
SA's unique history among post-colonial countries includes its having a highly diversified and substantially industrialised economy. Thus much of SA is not so amenable to patronage-for-the-masses tactics. "Jozi" is not Jozini. SA's dynamic businesses continually inspire, mostly urban, transformation successes. Urban middle class expansion threatens entrenched political power.
The private sector is not beyond criticisms. It is also structurally biased toward 'getting while the getting is good'. Corporate leaders don't focus on leaving family businesses to the next generation. Listings, stock options, and emigrating are well traveled paths. Nonetheless, in high growth economies such departures are more than offset by policies which attract long-term foreign investments and support local business formations. In the long run, only competitive businesses increase jobs and grow economies.
Aristocratic structures entrench inequalities while squelching prospects. Their enduring quality prior to industrialisation and globalisation was that they provided order. SA's options and prospects are now contracting while the constructive discipline of elections must wait. Discontent will find expression.
Shawn Hagedorn is an independent strategy adviser.
This article first appeared on www.biznews.com
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