Cosatu's "Growth Path": Path to Venezuela, not the path to growth

Cosatu's "Growth Path" document is an impractical wish list of discredited ideas that would scupper South Africa's fiscal and monetary policy stability, and undermine investment and job creation (see extract here).

The most serious problem with Cosatu's document is that it paints a picture of a world without trade-offs - where it is possible to force interest rates lower without driving inflation, where governments can run larger deficits without incurring debt, and where taxes can be raised infinitely without deterring investment.

Everywhere in the world where these ideas have been tried they have failed. Venezuela is the most recent example where state intervention, nationalisation of private assets and irresponsible fiscal and monetary policy have driven inflation to 30% and shrunken the economy by 5% a year.

Cosatu's analysis takes a swipe at the Growth, Employment and Redistribution strategy (GEAR), which it blames for our inability to tackle unemployment and poverty. The reality is that, along with many other inspired policy proposals, the ANC's "allies" blocked fundamental reforms outline by GEAR including: flexibility in collective bargaining, scaled up privatisation, increased use of tax incentives and an overhaul of training programmes. These reforms have worked to drive growth and create jobs in places like Chile and Brazil.  GEAR, in turn, could have worked if Cosatu had not blocked its most imperative reforms.

Unfortunately, Cosatu continues to block practical new policies to tackle unemployment. They have held up Finance Minister Pravin Gordhan's practical Youth Wage Subsidy proposal for almost six months on ideological grounds that they fail to flesh out in this document.

Perhaps one of the greatest indications of just how out of touch Cosatu's thinking is the identification of ‘strategic' nationalisation as one of its key priorities, "including land currently used for game-farming, golf-estates and land held for speculative purposes".

Mining is specifically targeted, but there is no acknowledgement that the one example of a state-owned mine, diamond-mine Alexkor, is nothing short of an absolute disaster. It has continuously lost money year in and year out, reducing its ability to employ people or attract any sort of further investment in the Alexander Bay community area.

South Africa has already seen a lack of growth in the mining sector in the past decade despite growth figures in other mining sectors internationally. This has largely been a consequence of clumsy state intervention through the provisions of the Mineral and Petroleum Resources Development Act, and the failure to maintain basic transport infrastructure. Nationalisation would surely be the death-knell for investment in this sector and one of our greatest vehicles for potential employment and growth would soon go the way of Alexkor.

In addition Cosatu's calls for the integration of private schools into the public sector is a shameful attempt by the federation to extend its grip on bodies that have every right to operate independently from the state by private funding. Indeed, the very success of these schools is often on the basis of that funding.

Apart from the principle that South Africans should be able to choose whether to use private schools or not, Cosatu does not seem to understand that in a democratic society the state has no right to monopolise the alternatives the public have available to them.

Cosatu's critique of the ANC government's tendency towards becoming a "tender state" is correct, as is their identification of unemployment as our most pressing problem - but even a cursory study of "solutions" in their document reveals that the federation is completely out of touch with the demands of running a modern economy.

South Africa is currently trying to join with the BRIC countries - the most dynamic economies in the world. If we are serious about this, we would do well to follow their model of rolling back wholesale state-intervention, and not satisfy the inappropriate power play from a trade union federation committed to outdated and discredited economic ideologies.

Statement issued by Tim Harris, MP, Democratic Alliance shadow minister of trade and industry, September 15 2010

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