Status quo versus a workable growth model
Policy makers and business leaders have been slow to appreciate what had become all too apparent to credit agencies and young career seekers. SA’s already inadequate opportunities are suffocating as economic stagnation becomes more entrenched than even the nation’s political paralysis.
Elections, protests, or probably deal-making will eventually dislodge the nation’s political blockages. A robust growth model is far more elusive.
SA’s governing and business leaders have never cracked the code for creating a workable growth and transformation model. The nation’s political and economic dialogues remain deficient while the challenges compound.
It was established years ago, though never acknowledged, that GDP is an invalid gauge of SA’s economic vibrancy. From 2002 to 2007, GDP was reported to have grown about 5% per year. Yet those were the years when the foundations of SA’s current economic stagnation were laid, consider: Eskom’s under investing; consumers becoming overly indebted; declining industrialisation; inadequate competitiveness; and over reliance on commodity exports.
The political dialogue has been no less distorted. It has only been in recent months that the term “patronage” has displaced “corruption” as the political condemnation du jour. Only now are commentators and the public beginning to adequately appreciate how cronyism has created potentially impervious patronage webs which serve narrow interests while arresting broad economic progress.
SA’s key policy makers gambled that China could continually grow two or three times faster than the rest of the world and just pull SA along. That China’s successes flowed from economic policies antithetical to SA’s should have stirred a sense of foreboding.
Economic development is not achievable through policies which encourage debt funded consumption while simultaneously discouraging investments, particularly investments in people.
Bureaucratic transformation structures displaced business logic while the implicit assumption was that commodity demand would expand in perpetuity. Recent developments point to commodities becoming ever less central to global economic growth.
Almost all of the economic prosperity in the world today stems from industrialisation and globalisation. Industrial output has been roughly doubling every generation for almost ten generations.
This trend had to stop. The transition is now gathering speed with few of SA’s workers ready to compete in the information age. The DNA of many SA’s businesses reflect isolation strains tracing to geographic positioning and the sanctions era.
The required antidote to combining over indebted consumers with over reliance on extracting commodities is to integrate into the global economy through exporting value-added products and services. This requires focusing on competitiveness.
The key factions of the ANC are however opposed to sufficiently market-friendly policies to encourage the investments required to achieve multiple pockets of global competitiveness. Their economic policy reflexes are firmly focused on progress through redistribution. This is politically understandable but it has become hostile to the interests of all South Africans.
By definition, an effective growth and transformation strategy must expand and broaden prosperity. This can only happen through creating a virtuous political-economic feedback loop. The extent to which this is not happening in SA is wicked to contemplate.
The West had the huge advantage of being first to industrialise. Young workers would flock from farms to factories. They produced tractors allowing for ever rising production of both food and machines. Such virtuous economic cycles provoke rising productivity across a diverse labour force.
China caught the tail end of this growth model and they now must also abandon it and focus more on services and domestic consumption. Importantly, China and its neighbours could never have maintained high growth rates for decades without exporting to wealthy western consumers. China's ability to uplift extraction economies was always a convenient deceit.
The rapid rise of Asia is perhaps the most amazing thing that has ever happened. A difficult result however is that countries, companies, and workers must now focus on achieving high competitiveness through specialisation. Such thinking has not taken hold in SA.
Progress is however accruing in improving the environment for such a major shift. There is rising awareness around the need for business and government leaders to cooperate more effectively and for both groups to be more engaging with small businesses.
To achieve a virtuous economic development cycle, government must revisit an extensive list of policy positions. This would be politically daunting in the best of times. The needed shifts in SA’s politics will not easily mesh with how the global economy is being reconceived.
Teaching young people to code sounds progressive. Of course those who prove to be lousy at coding will be unemployable. What is so difficult to accept politically, across leading western countries and particularly by SA’s policy makers, is that despite coding being quite 21stcentury, career prospects for “average coders” are remarkably dim.
Being average is unpleasant in a highly specialised, ultra-competitive, integrated global economy. On average, most people are average. But it’s hard to be universally average.
Very nearly everyone has innate talents. Many companies and workers have figured this out. Exploring, aligning and developing such talents however requires a highly flexible set of labour regulations. SA's path to competing globally will place much reliance on creativity and specialisation making flexible labour regulations more important still.
This is deeply problematic given SA’s political dynamics. Whereas older workers often prefer political redress to learning new skills, somewhat similarly, the ANC’s fractious factions collectively favour economic options, such as an industrial renaissance, which no longer exist.
ANC leaders show modest openness toward change while neither they, nor their big business counterparts, acknowledge the extent to which the status quo must be rejected. Likewise, designing a growth model for SA needs to make presumptions around what can, realistically speaking, be implemented versus what is the minimum degree of change necessary.
Given SA’s multitude of disconnects, the path forward will not come from committees tweaking the status quo. A comprehensive analysis will need to produce a powerful, highly disruptive, vision and that vision will need to be sold to the various factions as the sole alternative to hemorrhaging hope.
Given SA’s circumstances, an effective growth model would, unfortunately, have to frontload political pain while the on-the-ground benefits would accrue gradually. Among the immediate payoffs however, would be the reactions of credit agencies, young South Africans, and foreign direct investors. On the ground, determination would displace despair.
To appreciate how SA’s policies are backward and inward looking, the nation’s SA’s senior government and business leaders should see today’s rapidly changing world through the eyes of those best able to adapt. They should take with them a varied group of young South African entrepreneurs and meet with such people in a diverse mix of nations.
They should also recruit guides well versed in the history of economic development and then fly north through the night. The guides would explain that while “Africa rising” is an essential priority, perceptions of progress are greatly manipulated by bogus statistics. The ground beneath them would be dark for the first few hours while passing over the homes of hundreds of millions of people.
Ireland would be a good first stop as it is one of the many countries whose history with oppression and economic ups and downs are extreme, even by SA’s standards. Irish hospitality and creativity has expanded from songs and poetry to writing code and accommodating research facilities for top global companies. Importantly, their young people have graduated from coping to aspiring.
BRICS entrepreneurs live in different worlds. The three resource focused economies, Brazil, Russia, and SA, are mired in patronage swamps. India’s and China’s brighter futures reflect investing in people.
On its way home, the delegation should visit resource endowed nations which are successfully transitioning into diverse, information age economies. There are few to choose from as the political and economic challenges are so extreme.
High on the list would be the United Arab Emirates. That many South Africans choose to tolerate Dubai’s extreme temperatures over their temperate homeland is one of many indicators that this monarchical government is successfully integrating into the global economy through competing selectively. Africa’s more competitive economies, such as sparsely populated, Mauritius and Botswana, have also carved out niches.
SA is hectically unique in that it has a large, highly diverse population, a sophisticated, mixed economy, tremendous resource wealth, and it is extremely isolated from major economies - and trade routes. Where SA shares a great deal in common with all nations, but particularly those dependent on resource extraction, is the need to fundamentally reinvent its economy.
As resources and SA’s consumers can no longer fuel growth, for the first time the country has no choice but to integrate into the global economy through competing by adding value in various specialised segments. This vastly increases the importance of innovatively disruptive entrepreneurs.
SA’s young minds are abundantly creative. The blockages reflect elites preferring a status quo with little to offer the next generation. It’s time to understand how virtuous economic development cycles work.
Shawn Hagedorn is an independent strategy adviser
@shawnhagedorn
A condensed version of this article first appeared on BizNews.
