Pro-growth, anti-business

7 May 2019

All politicians say that they want to help the country prosper, but far too much of what passes for policy proposals would do no such thing.

Too many political parties have not thought sufficiently carefully about what drives growth. Worse, they believe that it is quite possible – and sensible – to be in favour of growth while also being convinced that business is basically evil.

In a series of briefs, Agenda 2019, the Centre for Development and Enterprise is encouraging voters to go beyond the slogans, ask hard questions and demand answers on key issues, before casting their votes.

The contradiction between claiming to be pro-growth while harbouring a deep anti-business animus is in the DNA of South African politics, especially the ruling alliance. This inconsistency is exposed when we consider that, collectively, business is responsible for the bulk of economic activity in the country.

Business employs more than five times as many people as government does, invests much more than government (and does so much more efficiently), generates all of South Africa’s foreign exchange earnings, and pays a large proportion of all the taxes that government collects.

Add to that the dividend flows which finance retirement for both private and public sector workers, and the fact that business provides all but a small fraction of the goods and services that households consume every day.

Put this all together, and it is blindingly obvious that business makes an enormous contribution to our collective welfare. And it beggars belief that so many politicians adopt so hostile a rhetorical attitude to it.

There are many reasons why politicians do this, of course. Chief among them are the Marxist and quasi-Marxist interpretations they apply to South Africa’s current realities and historical evolution. Some talk about the exploitation of today’s workers or that firms that provide healthcare are “vultures”.

Some see a deep, instrumental connection between business and apartheid, and draw from that dubious premise the even more dubious conclusion that current challenges of poverty and inequality must also somehow be good for business and, or, that business must be the cause of them.

Dubious as these claims are, it is undoubtedly easy to make them because South Africa’s electorate has been primed to see business as the villain, a casting that plays off the country’s exceptionally high levels of inequality, the blame for which is widely interpreted to be a consequence of business’s greed which supposedly drives down wages.

Apart from the fact that this is not true, it reveals one of the features of much of the anti-business rhetoric that is often on display. This is the confusion between the notion of business as an interest group and the notion of business as an activity.

When people think of business as an interest group, what they are thinking of is an entity of some kind that is composed of people who are presumptively rich and selfish and who dominate the ‘commanding heights’ of the economy, pulling the levers of power. This is the recipe for conceiving business as a villain. A much more productive conversation could be had, however, if business were thought of as an activity, as the process by which the factors of production are combined to create value and to deliver goods and services to customers.

Thus, it is one thing to criticise a business that may treat its workers or customers unfairly, which cheats suppliers or SARS, or which defrauds investors, or tries to bribe politicians or officials to influence policy outcomes or tender decisions. To criticise, in other words, those blameworthy actions that some businesspeople sometimes engage in. Criticising business as an activity, on the other hand, is the equivalent of criticising the process of development itself.

Development, after all, is nothing more than an economy-wide process of unlocking and adding value, and is manifested in the expansion of commerce, trade, investment and employment. Development is the expansion and intensification of business activities.

That some politicians and parties have such profoundly negative views of business is therefore a major constraint on South Africa’s development. This is because of the (legitimate) fear that firms and investors have that such views will translate into anti-business policies.

Such policies include badly conceived and often badly implemented, often unnecessary regulations that increase the costs, risks and frustrations of running a business. These kinds of actions affect all businesses but are especially serious for small business owners, whose firms do not have the resources to hire personnel dedicated to navigating these complex regulatory realities.

Worse than excessive regulation, other anti-business policies introduce even greater risk and uncertainty about returns.

If politicians act to weaken property rights, or even if they threaten to do so, the owners of business assets cannot be certain that they will be able to reap the rewards of their success even if they are able to overcome all the other obstacles to success (including competition from other businesses).

If politicians run the country’s finances into the ground, they increase the probability that corporate taxes will rise. If politicians choose to focus their regulatory powers on the distribution of ownership of existing forms, rather than on facilitating the emergence of new firms, then the costs of doing business will go up.

Inevitably, these actions reduce investment in new assets, deter maintenance of existing assets, and encourage businesses to begin to liquidate assets or transfer them to safer jurisdictions. The result, at best, is that society accumulates productive capabilities more slowly; at worst, a country loses them altogether.

If South Africa is to prosper, if we are to see more rapid development, policy-makers are going to have to get over their anti-business attitudes. This is a critical first step.

Beyond that, they need to build growth coalitions – at national and local level – in which business and government can engage each other constructively in the interests of creating more open, competitive business environments in which regulatory constraints are minimised. We will need new approaches to supporting business growth and, critically, new business formation: as Ricardo Hausmann has put it, “South Africa’s problems do not stem from the businesses that exist, they stem from the businesses that do not exist.”

In light of this, and in light of the election next month, voters need to challenge those who are looking for their support about their attitude to business. They should be asking political parties how they intend to protect property rights, how they will reduce the difficulties associated with starting a business, and how, if elected, they intend to reach out to business (big, medium and small) to foster the conditions for faster, more labour-intensive growth.

But perhaps the single best question voters should ask of parties arises from something President Ramaphosa said last year. Speaking at the Investment Conference, he said, “We should treat our entrepreneurs as heroes and move away from what we have been fed, where we treated our business people like enemies, called them white monopoly capital and all that. That must end today. Let us see our business people as heroes.”

Voters should ask whether the political party they support agrees.

Ann Bernstein is executive director of the Centre for Development and Enterprise. This article is based on a new CDE report, Agenda 2019: Business and Development.

This article first appeared in Business Day