Peter Bruce addresses in his article “DA’s economic policy document doesn’t resonate with the electorate’ (Business Day 4 March 2020) a number disparate of issues and approaches in response to Gwen Ngwenya’s draft economic policy document recently released by the DA: The desire for a more robust document; a warning against ‘a return to corruption bashing’; the belief that the DA is not in a position to choose then the ground it fights on; the threat posed by Herman Mashaba – bolstered by Jonathan Moakes’ and Boughey’s ‘defection’; the need to make two simple points (capitalism must change, and we must all become stakeholder capitalists); the inclusion of unions on the boards of companies; and the creation by the state of a fund for every child (at birth) to be accessed by young people when the they reach the age of 21.
At the core of this is another attempt at a new social contract, a new balance between the market, the state and civil society, based on what many call “progressive capitalism”. It recalls the words of President Woodrow Wilson: “You are not here merely to make a living. You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget the errand.”
It also echoes the words of the neo Keynesian economist, Joseph Stiglitz, who put his finger on the problem when he said: ‘there has always been a battle: those with power and wealth want to maintain and augment it, even when it comes at the expense of others’.
The solution however, has always been under debate and no perfect economic system exists; there are always trade-offs—in the most extreme form between total state ownership of capital and unfettered markets without any regulation or welfare state. Today, few would opt for either pole; what modern socialists and capitalists really disagree on is the right level of government intervention.
And so, yes, capitalism must change, and indeed unlike socialism, it has.
A relatively recent study, “Economic freedom, good governance and the dynamics of development” by Eva Medina-Moral &Vincente Montez Gan ( Nov 2018) shows that irrespective of development stage, the engine of economic growth in market economies is the entrepreneurial spirit and its catalyst is a robust institutional setting where economic freedom and governance are given priority, thus stimulating a diverse business dynamic, which encourages the creation of viable businesses and therefore economic growth.
Now that we’re all clear on the nexus between economic freedom and economic growth, let’s address the issue of corruption bashing.
Corruption Watch has identified key pillars of economic freedom and their relationship with progress. It’s a useful place to start when building a differentiated platform for political intervention which involves the choice a political party makes to centre ‘the ground it fights on’. These are the Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom).
South Africa was able to retain its investment-grade credit rating because of some policy improvements after President Cyril Ramaphosa took office in February 2018. The new government restored a modicum of macroeconomic stability but still faced rising public debt, inefficient state-owned enterprises, and spending pressures that have reduced the country’s global competitiveness. This has changed within a relatively short period as a debt mountain weighs down the fiscus and the country faces an imminent downgrade to junk investment status. Meanwhile Ramaphosa seems paralysed to act decisively. The judicial system is increasingly vulnerable to political interference, and continued scandals (some new) and political infighting have severely undermined government integrity and weakened the rule of law.
This is fertile ground for an opposition party whose economic premise is economic freedom.
As for the challenge (yet to be proven) from Herman Mashaba’s party, ostensibly bolstered by Paul Boughey and Jonathan Moakes – both individuals who accepted responsibility for not ‘knowing their stuff’ and driving the DA backwards under their strategic aegis for the first time electorally, there is much to differentiate – the very reason for having distinct political offerings.
Yes, the freedom they now have to formulate a populist platform based on championing a return to the death penalty and excoriating foreigners in xenophobic messaging is a clear and present danger but it ought not mean that the DA should tailor it’s values, policies and principles to suit the baser touch points of an economically embattled electorate.
Ngwenya’s draft economic policy sets out to present a framework for discussion and adoption at the upcoming policy conference. These will then be crafted into messages and sound-bytes that our polling tells us resonates with the electorate – to take us forward, rather than the shrinkage delivered by Boughey, Moakes et al. And if it doesn’t achieve that, at least we have an agreed-upon set of policies and principles to rally around and build. It’s called political integrity; the rest is window dressing.
With regard to changing the face, and dare I say, the body of capitalism, it can be made more inclusive, and government programs can help smooth its rough edges. But none of these changes require governments to take over entire industries. In this market, the reform could be a less intrusive government option, subsidy, or sometimes just better accountability. Ngwenya is firm on this.
But let’s be clear, inequality is tolerable only if the poor have a shot at becoming rich. But to avoid greater instability – and to ensure the greatest possible buy-in for the capitalist system – today’s business and political leaders can do more to make sure everyone at least has a chance. That’s where equality of opportunity comes in as opposed to equality of outcome and education reform and development of rural areas are necessary to close the gap – that’s not socialism – it’s building off capitalism. And if the counter argument in Thomas Piketty parlance is that r (the return on capital) is historically greater than g (the economic growth rate) because the rich own most of the capital, and therefore accumulate wealth faster than everyone else, making rising income inequality is inevitable, surely the rebuttal must be that as capital accumulates, the return on capital should decline? After all, isn’t that what happens in every other market when there’s an excessive supply?
In any event, South Africa’s solution must be tailored to its own conditions and what is politically possible. There are some useful principles to bear in mind: government policies towards the labour market are best directed at equipping workers for new occupations and cushioning the income impact of structural changes rather than trying to preserve all current jobs through stultifying regulation.
For example, instead of blocking immigration, help should be directed at local areas absorbing large numbers of new migrants, to ease the social impact.
The problem is, growth has been too low, for too long, and is reaching too few.
To combat this we will need to pull on all policy levers – monetary, fiscal, structural – to support demand, boost productivity, and reinvigorate trade. Investing in social safety nets, education, and retraining those affected by technological change are key. This represents a major challenge for policy makers – they cannot do it alone – and this is where business comes to the party. It’s much more than tinkering with scorecards.
And while employee shareholding schemes are desirable I have concerns about a corporatist approach that diminishes the role of collective bargaining in favour of union board representation. Comprehensive stakeholder engagement is important and of course executive remuneration that incentivises short-term incentive schemes and excessively bloated remuneration needs to be addressed – I’m not sure that the place to do so would be boardrooms of companies though. Boardrooms are not necessarily the place to settle these questions – board members have one duty and that is to represent the interests of shareholders, investors and owners.
That aside, Codetermination is not new. It has been in force in Germany since the mid-seventies. South Africa however is not Germany when it comes to responsible a-political union involvement any more than it is Scandinavia when it comes to public ownership of companies. In any event, the imperative here is growth and Singapore presents a better example for us. In the decades after independence, Singapore rapidly developed from a low-income country to a high-income country with GDP amongst the world’s highest, at an average of 7.7% since independence, topping 9.2% in the first 25 years.
Singapore also, according to the World Bank, ‘ranks the best country in the world in human capital development. A child born today in Singapore will be 88% as productive when she grows up, as if she enjoyed complete education and full health. Together with strong financial support from the government, the country continues to strengthen the nimbleness and flexibility of its workforce by providing continuing education such as the Skillsfuture initiative. Government spending on continuing education will nearly double, to more than S$1 billion yearly’. The bang for their buck is there for all to see.
I reckon this costed model trumps the ‘noble’ suggestion that the state funds an independently accountable trust fund for all children at birth. This is at best interesting but full of questions – the fairness of an arbitrary cohort, the inviolability of the fund (given government support for prescribed assets for bailouts), the cost implications for the fiscus and more.
None of this excludes the imperative for economic inclusion but it would do well to remember that inclusion and durable growth are two sides of the same coin – we cannot have one without the other.
I suggest Mr Bruce has a third and more comprehensive read of the DA’s draft economic document and that he focuses on growth as that is what is sorely needed. I’d also be keen to know if, as Mr Bruce says, there is nothing in the document President Ramaphosa would disagree with – I have my doubts – but if it is indeed the case then we have much to discuss. It’s a pity that ANC policy documents are not made public and seek input prior to adoption. Unfortunately the democratic centralist model doesn’t quite work like the open book the DA is.
Ghaleb Cachalia
