Emergency edicts or a core course correction
SA’s economy was on track for prolonged stagnation with debts compounding unsustainably and government having abandoned serious consideration of structural reforms. That was last month. More recently, Covid-19 has devastated already lacklustre global growth prospects. Policy pivots are urgently required yet preparedness remains hindered by warped perceptions of both the status quo and what is possible.
Rising risks of debt defaults across government, commercial and household sectors improve the IMF’s otherwise modest leverage to pressure for policy reforms. They also make such reforms more difficult.
The global factors which drive today’s economic development and commercial outcomes must be accommodated to design a workable growth plan that suits SA’s circumstances. Instead, our policy makers ignore what doesn’t align with their political calculations - which are often shaped by factional battles within the party and with its alliance partners. This leaves economic policies anchored to redistribution excesses which trigger counterproductive consequences.
The coronavirus’ domestic impact on people and the economy ranges from relatively minor to catastrophic. More specifically, government's ability to fund its swelling fiscal deficit could be suddenly imperiled.
The country’s vulnerability is further heightened as none of our leaders can produce a credible growth plan. We can make this far easier by objectively identifying and scrutinising the most economically disabling false beliefs.
What will surface are insights along the lines of:
Corruption is not the cause of our economic malaise rather it is a symptom of broad political dysfunction.
Framing SA’s economic challenges in terms of inequality - rather than poverty and unemployment - dodges accountability while precluding workable solutions.
Unemployment and poverty will remain at politically combustible levels unless value-added exports surge.
SA’s most globally relevant workers are unemployed, poor and poorly educated.
Corruption and incompetence across government and SOEs are symptoms as is inequality. The country’s stagnation amid high poverty and extreme unemployment rates traces directly to policy failures - yet those failures are tolerated by the majority of the electorate, which is poor.
The ruling party’s economic stewardship is remarkably inadequate and the last election was preceded by abundant evidence of its having been captured by a pervasive patronage network. Yet the party’s electoral dominance persisted.
Policies creating massive dependence on the state were made electorally effective through flaming fears that an ANC defeat would lead to vital payments being curtailed. Until responses to the coronavirus began to drastically undermine global growth prospects in recent days, the party’s leaders could still hope to postpone policy reforms indefinitely.
Given the magnitude of the looming crisis and rising credit market pressures, near-term economic policy pivots have become much more likely. But the preparation work has not been done. The president’s and the finance minister’s addresses to Parliament last month clarified their having abandoned pursuit of a high growth path. Rather, their focus had shifted to containing expenditures.
Today’s unfolding crisis could overwhelm the political inertia which precludes much-needed structural shifts; yet, there are no credible plans under consideration. Unpacking the various misconceptions which preclude effective economic policymaking would both delegitimise prior plans and explains why leaders inside and outside of government are unable to design a workable growth model.
It is certainly possible to respond to the crisis by objectively overcoming the false beliefs which have undermined economic policymaking and to then design a robust set of plans, but would this be sufficient? Would it be prudent to reset economic policies amid a crisis without also unpacking the underlying political disconnects?
Experts in various fields have observed that ‘structure drives behaviour’. Social scientists like to contrast structure and agency. To analyse how societies advance it is important to distinguish between core structures like democracy and capitalism versus human agency qualities such as free will and ambition.
Nearly all countries in all other regions have adopted structures which encourage people to pursue their ambitions. The flourishing of capitalism, democracy and free-trade has pummeled global poverty over the past three decades. Conversely, our ruling politicians have favoured creating dependencies on the state thus stifling ambitions and entrenching pervasive poverty.
Politics have been manipulated by our ruling elites such that the economy is structured to benefit them while deadening the aspirations of the far more numerous poor and unemployed. Rather than balancing the delicate trade-offs between redistribution and growth, redistribution has been recklessly indulged fueling a deluge of patronage. Corruption and SOE incompetencies have become deeply embedded while poverty has been rising for a decade with no end in sight. This traces directly to patronage-inducing policies favouring redistribution at growth’s expense.
SA’s political machinery is shaped by our constitution yet there are disconnects which run deeper than government’s institutions and structures. Most societies are now benefiting greatly from having overcome the might-is-right dynamics which had supported “big men” styled politics for millennia. Political structures and cultures adapted to support individual aspirations as the advantages were so profound. Aristocracies and monarchies were motivated to diffuse powers to keep up with competing neighbours.
Culture matters. Black-white cultural contrasts distract from a diverse matrix of disconnects. SA is isolated from a deeply integrated world by geography, government choices and a history of divisiveness. Isolationist indulgences are under appreciated and unaffordable. Political elites benefiting at the expense of the poor reflects unchecked greed and outdated perceptions of natural hierarchies. The social conditioning of well-educated blacks and whites blinds them to how SA’s least formally educated can be integrated into the global economy more easily than they can.
Our political rulers are legitimised by the constitution and elections while they pander to pre-modern cultural biases. The world has moved on. Societies structured around big men making the masses dependent on them are no longer viable. Global poverty has plunged as most nations have built their economies around global integration which relies on ambitions to provoke innovativeness and competitiveness.
In SA, the structure that denied the majority dignity and access to opportunities has been replaced with a toxic mix of paternalism and patronage. The constitution’s reliance on electoral accountability has been nullified by the politically appealing messaging that today’s inequalities must be dismantled to make amend for past injustices. It is not that such messaging lacks political and moral validity. Rather, the resulting policies, practices and cultural norms induce dependencies which provoke patronage and paternalism. This chokes growth thus prohibiting broad prosperity.
Can the country’s economic policies be remedied without addressing the underlying political disconnects? Maybe, but we should rather prepare for a crisis by objectively exploring the sources of both our political disorder and economic infirmity.
Shawn Hagedorn is an independent strategy adviser shawn-hagedorn.com
