JAUNDICED EYE

The African National Congress government seeks economic salvation in all the wrong places.

It’s not to be found in a slavish imitation of Xi Jinping’s authoritarian template for China’s developmental state. It’s not to be achieved by robotically following Karl Marx’s century-old map towards a socialist nirvana. Nor, most implausibly of all, by chugging the ANC’s home-brew Kool-Aid blended from both, the heady draught of the National Democratic Revolution.

The route to regaining our economic mojo is less glamorous, more prosaic. When pressed for an example of how to extract South Africa from its economic morass, Professor Ricardo Hausmann, one the world’s most influential political economists and head of Harvard’s respected Growth Lab, suggested … Albania. ___STEADY_PAYWALL___

Not necessarily and specifically, Albania, you understand. But the likes of. Countries that were seemingly basket cases but pulled themselves up by their bootstraps.

What Hausmann was in essence saying — he was being interviewed by Ann Bernstein, head of the Centre for Development and Enterprise at Wits, following the release of the Lab’s 30-month applied research project into the South African economy — was that South Africans should shed their mental shackles. Developmental success for a middle-income country like ours would not result from ideological formulations but from boxing clever, making quick and effective interventions that are known to have worked elsewhere. 

Hausmann identifies ideology as a major impediment to finding pragmatic solutions to our many problems. He uses as an example the electricity sector, one of the nine areas of “deep-dive” research by the Lab.

“South Africa had the engineering capacity, the financial capacity, and the knowledge to fix the electricity problem, but ideology prevented the state from allowing that to happen. Certain ideologues ... want to see not just electricity being supplied, but that the electricity is being supplied by a state monopoly,” he says. 

Paraphrasing former Chinese leader Deng Xiaoping, he says that we appear to care more about the colour of the cat than whether the cat catches mice.  

Hausmann has had a long involvement with South Africa. At the invitation of former Finance Minister Trevor Manuel, he chaired the international advisory panel for the Accelerated and Shared Growth Initiative of South Africa (AsgiSA) and helped write the report. AsgiSA was President Thabo Mbeki's sensible but ill-fated programme to halve poverty and unemployment by 2014 but which stumbled in the wake of the 2008 financial crisis and then finally had its neck wrung by the Great Destroyer, President Jacob Zuma.

Since then, says Hausmann, he’s been hooked on the country. “South Africa has not had it easy, it’s not been dealt the best set of cards. I’ve always thought if you can win the game, it’s a huge message to humanity.”

His expertise is that of both scholar and practitioner. He's not only behind several concepts that are now common currency in developmental economics — one theory, based on the relationship between the cumulative knowledge in a country and its economic development achievements, bears his name — but he also has a wealth of hands-on experience, including a stint in the 1990s as Venezuela's Minister of Planning, and in helping many developing countries to grow their economies. Like Albania, for instance.

The Harvard Growth Lab report notes that three decades after the end of apartheid, the economy is defined by stagnation and exclusion. The government’s current strategies are not achieving inclusion and empowerment of disadvantaged groups. As a result, South African society is facing the traumatic consequences of extreme unemployment and inequality.

South Africans have every reason to feel disappointment, says Hausmann. “The sense of optimism of the Noughties, that things were improving, has gone. By every international benchmark, South Africa has underperformed.”

The government has not only failed to accomplish its goals of inclusion and empowerment. Worse, what is being done to address the problems — preferential procurement policies and cadre deployment — are, in fact, exacerbating the situation. “The evidence suggests that these attempts to use the state to transform society have, instead, undermined the capacity of the state to carry out its necessary functions.”

The Harvard research identifies two broad classes of problems that undermine inclusive growth: collapsing state capacity and spatial exclusion. One can pretty much ignore the latter as being of no more than academic interest. 

The geographic exclusion of potential workers from where the jobs and economic action are, is arguably a secondary matter. It’s a historic distortion that cannot be speedily addressed and, in any case, the anticipated benefits of its resolution are entirely dependent on South Africa having a functioning state.

The key is state collapse. It’s the “predominant driver” of our weakening economic performance and growing macroeconomic stress and it should, in theory, be a relatively easily resolvable problem. After all, every local report, from those underpinning the National Development Plan to the Zondo Commission’s recommendations on state capture, has outlined feasible and attainable solutions broadly similar to those proposed by Hausmann and his team.

But the problem is a lack of political will and commitment. “We find that current reform momentum is unlikely to reverse this collapse because reforms are encountering systemic, deep-seated, and underlying issues of political gridlock, ideology, patronage, and an over-burdening of state organisations with goals beyond their core missions and capabilities,” says the report.

More informally, Hausmann says that “the reason why gridlock is overcome in other societies, is that if you don't fix the stuff, you lose the next election”. The ANC, however, feels that it has no reason “to bite the bullet”. 

“There is this idea that their power is entrenched. Because political power is less contestable here, there is none of the urgency that democracies usually generate around these issues.”

It’s not all doom and gloom. The report says South Africa is in a strong position to create new sources of comparative advantage — the old one was the ability to transform coal into cheap energy — by leveraging the global changes that the energy transition is creating. Hausmann also sketches a range of relatively simple interventions to improve South Africa’s terrible labour participation rates.

It all comes down to, says Hausmann, focusing less on redistribution to compensate people for their exclusion. Instead, “we want to see investments that promote inclusion because growth through inclusion is going to be a win for growth and a win for reducing inequality.”

So, what about the whole Albania thing? 

“We've been working on Albania for the last 10 years,” says Hausmann. “When we got there, it was in the throes of fiscal, banking, currency, and electricity crises. Now, electricity has become a source of growth. Tourism is booming. It's just the happening place.

“All it took is that we fixed a bunch of little things, but the market reaction surprised everybody. It’s been just amazing.”

“There’s energy in a society, it just needs to be harnessed, says Hausmann. “I'm very convinced that there's so much talent in South Africa that if we just fix enough things people can transform the place. 

“And, you know, worry about the cat catching mice.”

Bernstein and Hausmann on YouTube.

Harvard Lab Report on Growth Through Inclusion.

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