Growth has to be our topmost priority - Politicsweb

By John Kane-Berman 

Poor countries must beware of the growing attacks on growth

The surest way to demonstrate one's politically correct credentials and signal one's virtue these days is to bewail supposedly mounting "inequality". Given its view that capitalism is a "crime against humanity", it was only to be expected that Oxfam should make a meal of inequality and demand that it be remedied by "more tax justice", whatever that may mean.

More serious is the recent statement by the World Economic Forum that "decades of prioritising economic growth over social equity has led to historically high levels of wealth and income inequality". In putting forward this argument, the WEF overlooks the single most important consequence of high growth rates in so-called emerging markets, namely that they have helped to lift billions of people out of poverty. This is an achievement that should be trumpeted from the rooftops, not hidden beneath arguments about inequality.

The achievement, great as it may be, does not mean that the poverty has been eliminated, least of all in Africa. But it would be a tragedy if further progress were now to be stalled. Rising protectionism in the US might do that. But there are also other threats to growth. One is green lobbies and their pursuit of policies that unnecessarily push up energy costs. Another is the attack on growth, typified by the WEF's statement blaming it for inequality while failing to credit it for its role in reducing poverty.

South Africa in particular should beware of the growing chorus of siren songs. We supposedly have the highest inequality in the world, the remedy for which is then held out to be more taxation and more redistribution. Yet this country's experience is an excellent example of what happens when you prioritise not growth over social equity but the opposite. Since the African National Congress (ANC) came to power, social spending as a proportion of total government spending has risen from 45% to 60%.

Yet overall income inequality has increased, for the simple reason that unemployment over that same period has risen from 3.67 million to 9.30 million. This in turn is largely the result of our poor economic growth performance. Growth in gross domestic product (GDP) per head over the last 20 years has averaged around only 1.5% (against 5.2% in India, for example).

Redistribution has resulted in important successes, among them increases in the proportions of households with access to water and electricity. Another form of redistribution has been the elimination of school fees for the great majority of children. Whether this has led to much improvement in the quality of school education is more difficult to assess. Either way, however, South Africa has reached the limits of prioritising redistribution above growth.

The WEF notes that GDP growth is a necessary but not sufficient condition for progress in living standards. Its development index accordingly includes other criteria, among them public debt, carbon intensity, poverty, and inequality. In South Africa, the Institute of Race Relations has pioneered the publication of a wide range of other statistical measurements of national well-being in its annual South Africa Survey.

Important though all these other indicators are, accelerated growth has to be the topmost priority. Output, incomes, and employment have to rise at much faster rates than the average over the past 20 years. If the new government that Cyril Ramaphosa will presumably put in place tries to pursue numerous other objectives, growth is likely to be retarded. Expropriation of private assets, intensified racial requirements for business, an even more redistributive budget, local procurement requirements that push up costs, unfriendly policies towards foreign business, and "radical economic transformation" will all deter the additional private investment that we need to push up growth.

Mr Ramaphosa returned from the WEF meeting in Davos with what he claimed were "bags full of investment commitments". Maybe. Even though he has made a start with his purge at Eskom, there are still too many obstacles to the investment needed for rapid growth. It is to be hoped that he ignores all of those decrying or seeking to downplay its importance.    

*John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom.

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