15 July 2024

SA has the world’s highest unemployment and highest income inequality. A coincidence? 

These twin indictments trace to inequality empowering political elites to use patronage to dodge accountability. The ANC, MK and EFF captured nearly two-thirds of our 29 May national vote.

Political and media elites, along with the US voting public, feigned oblivion for months as their president faded. Biden supporters should have anticipated their current crisis. Likewise, we mustn’t kid ourselves about the health of our political economy.

We don’t have an inequality problem due to our having too many rich people. Rather, our constitution’s capacity to hold politicians accountable has been undermined by policies and practices designed to create dependencies. Our unemployment statistics are unavoidably imperfect. They don’t adequately convey that a majority of our school leavers are condemned to lifelong poverty. From the perspectives of the ANC, MK and EFF, this has been a feature, not a bug, of our political economy.

Mining towns … cities

A geographically isolated mining town will only employ so many miners and their monthly expenditures will only support so many jobs. Uplifting large volumes of poor people requires thriving cities. 

A country’s future prospects are what school leavers confront. If the status of a country’s median twentysomething is the metric, few, if any, score as badly as SA. Our median 25-year-olds are unemployed, poor and poorly educated. Their prospects resemble those who are stuck in a mining town whose economy suffers from diminishing capacity.

For the past three decades, most countries have joined an intensely integrated global economy with countries, companies and workers excelling at their chosen niches. As this is fully incompatible with a patronage focused political regime, while globalisation was uplifting over a billion people, we morphed from sanctions to localisation, thus dooming most of our young adults. 

Perhaps the best metric to gauge a country’s prospects is the portion of its young adults who add value to exports. With the exception of our automotive manufacturing sector, which is highly distorted to benefit union workers at consumers' expense, we have remarkably few young adults adding value to exports.

Many opposed to the ANC’s mis-rule have focused on correcting obvious performance shortfalls while accepting the ANC’s rejection of globally determined success drivers in favour of the isolationist policies which support the party’s patronage-focused electoral strategy. They rarely challenge the counterproductive prioritising of inequality, localisation and beneficiation. Rather than developing solutions for low productivity, non-competitiveness and isolationism, these challenges are accepted as an unavoidable consequence of horrific education outcomes. 

The ANC remains reliant on patronage while its GNU partners are expected to repair performance shortfalls which the ANC has propagated. We should encourage and applaud whatever progress is achieved but this approach is fundamentally flawed. While it has much potential to rescue a sinking ANC, it won’t noticeably alter the dire prospects of typical South African jobseekers.

Half of our twentysomethings are poor and lack paths to lower-middle class as there are far too few jobs which develop skills. Some jobs involve intense training whereas many are devoid of skill building. Increasing GDP growth from 1% to 3% per year would be difficult but it is doable. We must encourage the government upgrades necessary to achieve this but we mustn’t delude ourselves into thinking this represents an adequate solution path.

The ANC’s electoral strategy will remain effective if government revenues increase sufficiently to fund its patronage machine. This requires governance upgrades which President Ramaphosa’s new dawn could not deliver. 

It now seems quite possible that the GNU will provoke just enough accountability to deliver sufficient performance upgrades for the ANC to maintain its electoral dominance. Yet there are no indications that there will be a parallel set of initiatives with the potential to swiftly remedy the youth unemployment crisis which is gradually eroding our social stability. SA is also among the top of the global league tables regarding murder and rape.

T or F

True or false:

SA’s commodity wealth provides a solid foundation for poverty alleviation and upliftment.

Unemployment and inequality can be meaningfully reduced by redistributing farmland.

We can solve our unemployment challenges through spurring adequate sustained growth.

If our government doesn’t substantially modify its policies, eventually the IMF will pressure it to do so.

Such appealing beliefs are politically persuasive but they are rubbished by economic realities.

While two small population countries, Australia and Norway, are notable exceptions, most commodity dependent nations are poor - and most poor countries are commodity exporters. In 2021, 29 out of 32 countries with a low Human Development Index were dependent on commodity exports. Nor is distributing farmland a panacea as food-stressed households are most frequently headed by smallholder farmers.

Efforts to reduce government-induced growth blockages must be encouraged as they will raise SA’s sustainable rate of GDP growth. Nonetheless, a political economy framed around patronage and isolation can’t succeed in a global economy where growth is achieved by increasing productivity through specialisation, integration and disruptive innovations.

Two factors restrain the IMF from preventing political economies like SA’s or Zimbabwe’s from imploding. The IMF was created to avoid balance of payment crises. However, commodity exporting countries are significantly shielded from such crises so long as they can maintain their basic infrastructure. Nor can the IMF negotiate effectively with ruthless regimes that are largely indifferent to the widespread immiseration of their people.   

GNU versus patronage

Big business and other members of the GNU have little choice but to work with the ANC to steadily expand the economy. This will not, however, remedy our political economy.

As Ramaphosa was a key actor in negotiating our constitution, his faction of the ANC is inclined to support it. Conversely, many in his party prefer policies and practices which reinforce the party’s deep patronage biases.

ANC leadership could change at any moment leading to the party embracing the MK or the EFF or both.

It is not realistic to think that the DA might gain a majority in 2029. It is much more likely that our constitutional protections will have been eroded to the point of precluding legitimate elections.

The best that we can realistically hope for is that the DA becomes the lead party in a coalition government. This is far more likely if the urban middle class is rapidly expanding.

Our constitution, along with the economy’s potential to fund massive patronage, encourages the most potentially aggressive actors to tame their impulses. But both our constitution and the economy are being eroded while the prospects of most school leavers remain dreadful. If this continues, it will tempt much ruthlessness. 

Fixing infrastructure to support mining and agriculture exports isn’t nearly good enough. Our political economy is shaped by patronage challenging constitutional protections and globally determined economic success factors. To counter this, we must create vibrant, enterprising cities that accelerate Africa’s value-adding integration into a rapidly evolving global economy which, while favouring the young, lacks sufficient new entrants.

US media is fixated on whether Biden should drop out of the race. It is remarkable how infrequently the question of his ability to lead for four more years is raised. Of course we must remove barriers to achieving higher economic growth, but we must also confront what is necessary to remedy the world’s worst youth unemployment crisis. Our youth are our future.

shawn-hagedorn.com @shawnhagedorn