South Africa's growth blockers

Shawn Hagedorn says it is a lie to think inequality can be overcome through quotas

How social conditioning blocks growth

Ineffective policy making, discredited ideological biases and widespread corruption are well-recognised ANC weaknesses. They don’t however explain why none of SA’s leaders can offer a workable growth plan. Digging deeper, the ruling party is first among a motley crew which has ousted commercial logic and economic development principles by perpetuating, and often exploiting, deeply ingrained misperceptions.

To roughly summarise, collective reasoning has been overwhelmed thus rendering political forces ineffective at checking the pursuit of unaffordable narrow interests. Escaping this predicament will begin with a few being able to identify and look past the misperceptions to sculpt a set of solutions which are both economically potent and politically doable. Clearing the political hurdles will require simultaneously resetting the twisted pillars supporting SA’s largely dysfunctional national dialogue.

SA’s geographic isolation, geological assets and history of divisiveness have incubated socially conditioned misconceptions which are easy for a liberation-movement-cum-ruling-party to exploit. Such exploitation then intensifies the economic toxicity of these out-of-date or simply false beliefs. Perceptions in other regions are influenced by successful role models and healthy regional competition. External influences buttress domestic efforts to keep their national dialogues current and realistic.

No country is as distant from a top three economy as SA while the world’s remaining clusters of entrenched poverty are concentrated in this region to a remarkable extent. SA’s poverty prevalence, above 60%, is even worse than the region’s average whereas the rest of the world is around 5%.

Today’s leaders of the former liberation movement can boast that the relatively peaceful 1990s transition produced an impressive constitutionally outlined democracy. Yet, over 70% of black South Africans survive on less than R50 per day and prospects for progress over the next decade are bleak. 

In the absence of sharp policy shifts, today’s global middle class norms - which constitute economic freedom - will elude SA for many decades. This predominantly traces to policies and a national dialogue which prioritise reducing racial inequality ahead of reducing poverty. The perception that racial inequality can be reduced without first plummeting poverty is as false as it is commonplace.

If social conditioning is the underlying causal agent, how would this be proved? The questions used in polls about economic issues could be fine-tuned to test this view, but is that necessary? Might it be that the social conditioning impervious to global success drivers is so pervasive that we are surrounded by evidence we don’t see, as fish don’t see water?

Black South Africans rank jobs as a top priority. Yet the ruling party maintains a majority despite its redistribution focused policies entrenching high unemployment and pervasive poverty while creating a modest number of affluent blacks. Why, given the mix of horrific economics and rampant corruption, has the ANC’s electoral support not declined faster?

“Hope” litters campaign messaging while the underlying reality is that ANC support has grown increasingly reliant upon dependency-linked fears. Much of the electorate’s tolerance traces to generations of survival being tied to dependency networks. As had been the norm globally, SA’s survival networks have long been family and tribal based. Apartheid reinforced this by closing off opportunities for merit based integration by the majority black workforce into the white-controlled resource endowed economy.

Extraction dependent economies encourage rent-seeking cronyism which favours policies engendering dependency networks. This is common across Africa and the Middle East independent of political structures. Consider that other “SA”, Saudi Arabia. 

For a resourced endowed economy to then enfranchise a majority population which had been oppressed by a racial minority opens the door to exploiting countless generations of familial and tribal dependency traditions. Notwithstanding inequality based justifications, SA’s BEE policies advance such exploitation. From a dependency perspective, creating a huge patronage machine was just a more aggressive step in the same direction.

That is, since 1994, the ANC built not a growth focused economy but rather dependency networks reliant upon government largesse or quota policies. Those layers of dependency networks built upon and reinforced long-standing layers of network dependencies. This was always going to entrench a high prevalence of poverty amid distorted perceptions. Conversely, the proven path to broad prosperity is to tap into the opportunities offered by integrating into the global economy. Even the monarchy of Saudi Arabia is now, finally, moving in this direction.

Senior political actors personally benefit from promoting the lie that inequality can be overcome through quotas. This is only possible if poverty becomes universal. Of course, such economic failure would be accelerated by political mayhem.

Social conditioning reinforced by guilt and victimhood have made the magical thinking of equality-through-quotas widely accepted across SA’s diverse society and professions. Prior to junk debt status reflecting fiscal tightening amid prolonged stagnation, public opinion also reflected decades of believing SA’s mineral wealth was sufficient to avoid an economic meltdown. 

Yet even today, there is still little recognition that SA cannot possibly achieve meaningful poverty alleviation without much more meaningfully integrating into the global economy. SA’s isolation, geological deposits and history entrench an inward bias which suits self-interested political elites but is hostile to this era’s phenomenal success at eradicating poverty through poor economies integrating with much richer economies.

As pivoting from an inward looking, redistribution focus doesn’t suit the political aristocracy which directs policy makers, they have created a conditioned response opposed to global integration around how colonisation is responsible for SA’s pervasive poverty. However, a casual acquaintance with history includes knowing that nearly all countries were colonised at some point and that very nearly everyone had always been poor up until a couple of centuries ago.

The reason this region is by far the poorest is that it is by far the least globally integrated. Such linkages are obvious to commercial minded experts in economic development but SA’s mix of socially conditioned beliefs won’t accommodate such insights. Hence, none of this nation’s leaders can come close to producing a workable growth plan. 

In a nutshell, the layers of dependency exceed the economy’s ability to fund them. The dependencies keep compounding whereas real incomes have been stagnating. The economy’s capacity for sustained redistribution has been exceeded. Even the reserve bank’s tools and beliefs have come up short. Inflation-linked wage increase are now insufficient to avoid declining purchasing power due to heavy reliance on expensive consumer debt.

This debt bubble is another layer of dependency which has helped flatten the long-term growth trajectory while jeopardising economic stability. Yet it is misperceived as bringing banking services to the unbanked. This further burdens the other dependency networks while precluding healthy growth in household net assets.

That black South Africans are predisposed toward dependency networks reflects the cultural norms which prevailed across the world for many millennia. Most countries have now become economically free societies through transcending such dependencies.

That the country’s whites believe only well-educated workers are globally relevant traces to social conditioning around working hard in school that became deeply ingrained in students from a young age by parents, teachers and even fellow students. Harvard professors have come to SA and explained why this presumption doesn’t hold. Yet such beliefs persist.

This country’s odd circumstances have provoked various beliefs at odds with today’s global realities. Neither the recent election nor junk debt status have yet jolted the national dialogue sufficiently to produce an upgrade. This largely traces to slow progress curbing corruption. Both dependency networks and economic freedom produce maldistributions of economic gains. But advancing economic freedoms unequivocally creates far greater growth while plunging poverty.

Perhaps government’s inability to constrain its bloated wage bill will create broad awareness of how the country’s economy is designed to create massive dependencies intended to cement political loyalty - and how this has ceased to be viable. The objective should rather be advancing economic freedoms, which requires a vastly different policy stance. Irrespective of union leadership tactics, reducing the wage bill could unravel the nation’s political calm in the absence of a workable high growth path being pursued.

It has never been easier to achieve economic freedom through pummeling poverty. Yet this requires accepting global norms and fully integrating into the global economy. Instead, politicians exploit race thus rendering the national dialogue dysfunctional. Proof? None of the nation’s leaders can see the high growth possibilities which, for now, are just beyond our reach.

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