Decoding the government’s economic double speak - Business Day, 17 May 2017
By Frans Cronje
In a recent speech to the Black Business Council in Durban, Finance Minister Malusi Gigaba argued that "we need to put in place policy and regulatory regimes which attract investment". He went on the say that weak policy deterred investment.
A few days earlier, his adviser, Prof Chris Malikane, is reported to have told a meeting in Johannesburg that the Constitution should be altered in order to open the way to nationalising various sectors of the economy.
He was quoted in a City Press news report as saying: "It’s true that this country will plunge [into crisis] and become like Venezuela and Zimbabwe. India went through the same pain. If we are real about transformation, we need to be real and strengthen our people ideologically and politically. We need to organise and educate our people. Did you think to transform is going to be nice?"
Contrary to what some analysts have reported, the minister has not clearly countered the views of his adviser. At best we have had tepid comments from Gigaba that he would continue to implement ANC policy and that it is currently not party policy to nationalise banks. So, what is ANC policy?
The party’s most recent policy documents (released ahead of its forthcoming policy conference) are unclear. A report we published concluded that they "flit almost effortlessly between endorsing both the National Development Plan, ostensibly a plan to free the economy, and the National Democratic Revolution — a strategy to secure state control over all levers of power in the society".
The minister and his adviser seem equally to flit between the need for greater levels of investment and the necessity of executing a near-complete nationalisation of the private sector.
How can this be explained? And what purpose could it serve to maintain such impossible contradictions?
We increasingly believe that the minister privately sides with his adviser. He is using his adviser as a mouthpiece to put into the public domain ideas the Treasury does not yet dare to articulate. The purpose is twofold. The first is to further stigmatise the private sector and turn public opinion against capitalism.
The second is to whip up racial nationalist sentiment as a means to win public support for the idea that a period of economic crisis (that would follow from any attempt to nationalise what the minister and his adviser fallaciously describe as "white monopoly capital") is a necessary (even welcome) precursor to true economic emancipation.
The more that view takes hold — and Malikane was reportedly cheered to the rafters by middle-class people when he spoke of the need for nationalisation — the more confident the government will feel in acting on its threats of expropriation and nationalisation without compensation.
This is where the "ideological strengthening" and "education" of "our people" that Malikane refers to comes in. Should such indoctrination be sufficiently successful then the "pain" of a spike in unemployment and a collapse in per capita GDP may be employed by the government to justify new and ever harsher onslaughts against the private sector.
Malikane’s task is made easier by the fact that a great number of journalists, commentators, opinion formers, politicians, activist organisations and nonprofit groups directly or indirectly campaign against property rights and a market economy, and in favour of greater state regulation and intervention in the economy.
Fortunately, there are many effective counters to what the minister and his adviser are up to. One of the most important is to ensure large volumes of compelling argument in favour of a small and effective government, property rights, a market economy and a thriving private sector continue to enter the public domain. Business leaders often do not appreciate how important public opinion is in shaping public policy, and how little funding is made available to do this.
South Africans need to know there is a choice on offer between the vision set out by the minister and his adviser, on the one hand, and the principles that have underpinned every free and open society on the other. Secure property rights anchor substantive human liberty and are essential to drawing the capital investment necessary to achieving the economic growth that will trigger the employment and entrepreneurship needed to free large numbers of South Africans from a life of poverty and dependency.
SA is a case in point where the correlations between fixed investment levels, economic growth, job creation, living standards and popular confidence in the future are very strong. The firmest steps towards a growth-focused economic policy were taken by the government in its Growth Employment and Redistribution (Gear) policy (adopted in 1996) and achieved considerable early success (despite the contrary effects of the Labour Relations Act and Basic Conditions of Employment Act and the government’s moves towards racial-preferencing policy). The number of people with a job doubled as economic growth rates picked up from the catastrophe of the 1980s to average more than 5% between 2004 and 2007.
The middle class — expressed in indicators from home and car buyers to household spending and the number of people gaining a university degree — grew significantly. By some measures it roughly doubled in size. Living standards increased very quickly as the number of households with formal houses and electricity and clean water roughly doubled, while social grant payments grew to reach one in four South Africans.
In 2006, real per capita GDP for the first time exceeded the peak that had been recorded in 1981. Literally millions of people were plucked from abject poverty while a considerable proportion of the population began its ascent to the middle classes.
There can be no question therefore as to what a winning economic formulae would entail for SA. The evidence about the central importance of investment driven economic growth that is led by a thriving private sector cannot be disputed.
But it remains a battle to secure the resources necessary to make that case while activists on the political left find it considerably easier to secure the financial resources to make their case for eroding property rights, introducing greater levels of counter-productive regulation, and placing the state at the centre of the economy.
Such is the imbalance that despite the strength of the evidence in favour of growth-focused and investment-led economic policy, arguments about the merits of Venezuelan and Zimbabwean economic models, and the principles that underpin such models, are being expressed with increasing frequency.
The private sector, property rights and market-driven economics are being presented as obstacles to progress. Economic growth is presented as a problem in that it skews the allocation of resources to the already prosperous — when this is quite untrue of SA’s experience since 1994.
The view that the Constitution presents an obstacle to economic progress and that the Gear years represented an era of socioeconomic setback is being presented by a growing collection of commentators and policy makers — when what SA most needs is to get back on the now relatively positive economic trajectory presented by those years.
SA departed from that trajectory when the ANC turned so sharply against many of the more sensible principles that had underpinned Gear at the party’s conference in Polokwane in 2007 — a turn that was compounded by the later global financial crisis and commodity price slide.
Now the finance ministry is trying to use the ensuing economic slide to justify further counterproductive state intervention in the economy.
The alternative is a fundamentally different approach that places private-sector-led economic growth and a market economy at the centre of economic policy thinking — exactly what so many activists and commentators now argue against.
By securing property rights at the same time as deregulating the labour market and introducing a system of charter or contract schools funded by vouchers, SA will have taken three of the most important steps towards becoming a broadly middle class society with an unemployment rate of below 10%.
The details of that alternative approach can be studied in a host of Institute of Race Relations policy papers of recent years and, most conveniently, in its National Growth Strategy (NGS) document.
Whether a policy model along the lines of that set out in the institute’s growth document will be adopted by the Treasury will determine whether SA can return to a high-growth trajectory that pulls millions of people out of poverty over the next decade. But in order for it to be adopted the greater struggle is to ensure that the merits of a model of development that cherishes property rights, market economics and a thriving private sector prevails in SA’s battle of ideas.
*Cronje is a scenario planner and CEO at the Institute of Race Relations, a think-tank that promotes political and economic freedom.
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