Patronage’s expiry date has arrived

Across the world for millennia, social stability followed from peasants accepting not just their inferior status but also a strong sense of duty to their lords and chiefs. Then the political and economic needs of industrialisation became incompatible with the acceptance of routine poverty. Purchasing power needed to expand to consume industrial output.

The leading political thinkers and economists responded by inventing and merging modern democracy and capitalism. Yet elections can be worse than a monarchy if they result in a series of patronage machines beholden to different groups but never focused on the long-term or broad national interests.

SA’s geographic isolation teamed with geological abundance provokes debilitating patronage. Sharp commodity price declines now highlight how the nation’s transformation challenges have been dangerously underestimated.

The politics of farming economies reinforced the strong exploiting the weak across the planet for the last several thousand years. Controlling land cemented the ability to bequeath political and economic dominance for generations. Such unhelpful traditions have not been exorcised while SA’s abundant mineral wealth amid an industrialised economy is a rare mix - and a recipe for trouble.

In the West a strong sense of duty had been anchored by religious doctrines and traditions. Then revolutionary political theorists and generals used pens and guns to purge pre-industrial social touchstones. Peasant obligations to God and “their betters” were reshaped to tap into self-interest as expressed through voting and shopping. People had not previously presumed that everyone was imbued by their Creator with certain inalienable rights including the “pursuit of happiness”. Religious piety and the acceptance of servitude by peasants would be displaced by pursuing happiness through the material accumulation that was necessary to fuel industrialisation’s mutual dependency with a large middle class.

The political freedoms which industrialisation helped inspire remain replete with imperfections but their now wide adoption reflects the ability of a constitutional democracy to encourage sustained economic growth rather than having national wealth be narrowly captured. Due to SA’s physical isolation and resource endowments, the apartheid government was able to pervert constitutional structures for the benefit of a racial minority. Meanwhile the rise of East Asia was gathering momentum through integrating within the global economy by selling value-added goods and services.

Apartheid’s sustainability was tied to commodity prices and aided by Cold War politics. China’s rebalancing its economy is less dramatic than the fall of the Berlin Wall but its global economic impact is greater. All-race elections didn’t cancel the deeply embedded patronage biases of SA’s political economy reflecting commodity wealth and isolation.

Farming and extraction based economies inspire rent seeking behaviour as reflected by the thousands of years of feudal and chieftain structures and by patronage threats to modern constitutional democracies. In SA today, prospects for commodity export earnings have been sharply diminished. Domestic consumption is constrained by over indebtedness and few of SA’s value-added exports compete effectively in the global marketplace.

Thus the country’s current patronage machine has suddenly become greatly mired by its own weight. The economy must focus on increasing competitiveness alongside vastly more effective transformation tools. This runs directly counter to what benefits a patronage machine that is able to exploit abundant natural resources whether the SA is South Africa, Saudi Arabia or South America.

The interests of patronage machines are not advanced by investing in people but rather by instilling a sense of obligation through dependency. When crops would fail the barons would feed the masses - with food they had previously demanded from them. Mineral wealth provides a preferred basis for creating patronage. The risk is that demand is permanently stifled, say, from a shift to an information focused economy reflecting broad environmental strains.

SA is in an odd place. The industrial era has been slowly ebbing but in the last many months the shift has become abrupt as reflected by commodity prices. SA’s next wave of ruling elites will have to accept that patronage politics has become unworkable. The 1994 political shifts were a dress rehearsal.

There will be no option but to invest in people and genuinely support SA’s business community. The moment of broad realisation is creeping into focus led by student protests. Older voters and rulers are still grappling to make sense of the changes while those born in the 1990s can see clearly how dim their prospects are.

The great successes of capitalism and democracy trace to the systems working together through people voting and shopping and aligning within political parties and companies to more effectively advance their interests. Such a focus on advancing self-interests has guided almost all of the world’s non-resource societies toward democracies and large middle classes replacing aristocracies dominating peasants.

SA’s political transformation is stumbling as its economy chokes because the nation’s ruling elites have created a vast patronage system which is not checked by voters. The society’s politics and economics are not grounded by an effective tension among individual and collective self-interests. Rather notions of fairness and victimhood spur ideas around expectations and obligations which, on a human level, are understandable. Yet in terms of realpolitik amid a hyper-competitive, integrated global economy, they undermine national interests through slowly dousing ambitions while serving to entrench unsustainable patronage.

Asian political and economic leaps followed those in the West but Asia’s successes have been no less formidable. While justice has played an expanding role, and as Asians tend to accept suffering as part of life, notions around fairness ideals have not slowed the region from developing its enormous potential.

SA’s political economy is deeply flawed. Economic transformation is a political and social imperative that was only ever possible through achieving high sustained growth. SA’s resource wealth was never sufficient to fund all-race material comfort. Its value has now been marked down such that it won’t even fund the nation’s current patronage machine.

Patronage is different from corruption. Funding large social grant programmes and a bloated civil services are examples of using the public purse to create loyalty. Such patronage can be perfectly legal while its ultimate costs can greatly exceed those of rampant corruption.

The industrial era created tremendous demand for natural resources which were often buried below societies distant from those that were quick to build manufacturing centres. More recently, having people form groups to advance their self-interests through elections and marketplaces has created a massive expansion in the global middle class. This only works when politicians seek to accommodate the interests of both businesses and workers. Even when commodity wealth is truly extreme, this requirement cannot be relaxed.

Venezuela might have the world’s largest oil reserves but its political economy is an abomination. The other top tier oil reserve country is that other SA, Saudi Arabia, where harshly priced stability is purchased through throwing stones and wielding swords.

SA’s political economy was not shaped by apartheid but rather in the 1860s when: diamonds were found in Kimberly; the Japanese chose to industrialise; and the Suez Canal was built. All-race elections in 1994 ended apartheid politics while China’s restructuring its economy today is forcing SA to wean itself from its commodity dependence. That Japan lead East Asia to become a powerhouse economic region is a permanent feature of the global economy as is the fact that the Suez Canal reinforces SA’s trading route isolation.

The bad news is that SA’s challenges are political, economic, geographic and geological. The good news is that there are no longer any options but to work together and invest in people. SA now has no choice but to integrate across historic divides at home and internationally. This is obvious to students while “leaders” seem lost.

Shawn Hagedorn advises on economic development.

He can be contacted on Twitter @shawnhagedorn and on gmail at hagedorn.shawn. 

This article first appeared in Business Day – see here.