New Growth Path: the path to poverty

Parliamentary legend has it that President Jacob Zuma's office was stormed on the morning of 10 May last year - the day cabinet was to be announced - by a delegation of unionists demanding a senior economic ministry for their man, in exchange for supporting Zuma's presidency. The story goes that this is the reason why the announcement was delayed.

Whether Ebrahim Patel was indeed appointed Economic Development Minister in such a chaotic fashion is difficult to confirm, but it has become clear that his Ministry was simply bolted on to the existing economic portfolios with little more than a vague mandate to "make economic policy".

Beyond the obvious questions about overlapping Ministerial responsibilities, there is a serious concern about Minister Patel's appropriateness for such a job. One respected economist commented recently to me that "the only thing he's done before is destroy the clothing and textile sector".  This is an obvious reference to his previous role as the head of that sector's main union, the South African Clothing and Textiles Workers' Union (SACTWU).

The clothing sector is not quite destroyed yet, but it's certainly on its last legs. I recently met workers in Newcastle, Kwa-Zulu Natal who are forced to be members of SACTWU in a closed-shop arrangement. They told me they couldn't understand how the union and the bargaining council can be working so hard to close down their factories because of non-compliance with centrally determined provisions.  They would rather keep their "non-compliant" jobs than see the factories closed.

Following my visit, Minister Patel declared a moratorium on factory closures until next month, when he claims he will broker a consensus to save the industry. I can only hope he will consult more broadly than he appears to have done in developing the New Growth Path document that was released on Tuesday.

Over the past two days it has become clear that Minister Patel faces two main problems with his New Growth Path: the first is economic, and the second is political.

Economically, the document is something of a curate's egg: part good and part bad, but as a result, entirely spoiled. The key issue is that the document envisions a scaled-up role for the state in all sectors of the economy without acknowledging that our public service has been so crippled by cadre deployment that we are a million miles away from the accomplished and efficient bureaucratic elite required to skilfully manage such broad interventions.  Involving an incapacitated state so deeply in our economy will put us on a path to poverty, not a path to growth.

The three clearest examples of interventions that will take South Africa backwards are the proposed state-owned mining company, the state-owned bank, and the cap on pay and bonuses for senior managers and executives.

South Africa already has a state-owned mining company; it's called Alexkor and it has posted losses of R275m and has shed 85% of its employees over the past ten years.  The state has no place in mining, aside from recouping royalties and taxes from private companies.  The same applies to banking: our financial sector is internationally lauded and has the capacity to step-up to our developmental needs. The last thing we need is taxpayers' money crowding out private capital in the banking sector.

Equally, while the proposal for a "social pact" to moderate wages is a good one, the component whereby pay and bonuses for senior managers and executives would be capped is madness. We need to tackle inequality by extending opportunity to those without, and subsidising young job seekers, not by driving small business owners and skilled managers abroad with salary caps.

Parts of the curates egg are good: all reasonable South Africans will applaud the proposals for reform of black economic empowerment, competition policy, and small business regulation and financing. In addition, the document has an awareness of economic trade-offs often lacking from government publications not produced by National Treasury.

Overall the bad parts of the New Growth Path taint the economic viability of the entire plan and represent a clear threat to South Africa's future growth.  The most obvious threat to the document itself, however, is political.

Minister Patel is clearly aware that his is a precarious mandate that overlaps substantially with the Trade & Industry, Finance and Planning Ministries'. In some respects he has tried to secure the policy high-ground: shoe-horning in preview of the New Growth Path hours before Finance Minister Pravin Gordhan's Medium Term Budget Policy Statement last month, as if to indicate who is really calling the economic policy shots.

But he has also made mistakes. Failing to consult with Nedlac, or the business sector, before Tuesday's release has turned them against the plan.  Consulting Labour one day before the release has had a similar effect.

But the real opposition could come from his cabinet colleagues and the Reserve Bank Governor. On Wednesday I challenged them to publically support the document, and the silence has been deafening.  We can only assume, therefore, that Minister Patel's lonely seat at the announcement of the plan is indicative of a lack of support from the "absent" economic leaders who between them have actual influence over macro, micro and monetary policy, and control the state's purse strings.

Most of the good ideas in the plan cannibalise the responsibilities of the Trade and Industry Minister, Rob Davies. The plan also reduces his IPAP2 Industrial Policy to a plan to turn around manufacturing, doing it a serious disservice.

It also stomps all over the Finance Minister's mandate - as defined in the Public Finance Management Act - to set economic policy and define a fiscal framework.  It airbrushes out his youth wage subsidy proposal, commits the State to a fiscal policy stance as well as significant new infrastructure expenditure, and alludes to firm currency interventions.

Alarmingly, it rides roughshod over the independence of the Reserve Bank, enshrined in the constitution, by committing the Governor to looser monetary policy. It also subverts Planning Minister Manuel's dual responsibilities for long-term planning and African infrastructure development through Nepad, and wipes his GEAR strategy from the slate of history by referring only to the RDP and Asgisa.

Perhaps Shakespeare would have identified in Minister Patel, instead of Macbeth, a "vaulting ambition, which o'erleaps itself, and falls on the other".  The silence from the Minister's Cabinet colleagues seems to suggest they are not planning to help catch him up.

The Democratic Alliance (DA) agrees with the ends of the plan: we need to accelerate GDP growth from an anaemic 2,6% to the six-percent-plus experienced by comparable economies, and we need to create millions of jobs, especially for young South Africans. But we do not believe that Minister Patel's proposal represents a realistic or implementable plan to do this. The state simply does not have the capacity.

Instead, international experience has proven that the best way to drive growth is for the state to actively dismantle constraints, not to intervene further into the economy. Equally, the best way to tackle unemployment is to reform the labour market regulations directly, or indirectly through proposals like the youth wage subsidy.

Policies like these will put South Africa on a growth path to prosperity. Minister Patel's plan represents nothing but a path to poverty.

Statement issued by Tim Harris MP, Democratic Alliance Shadow Minister of Trade and Industry, November 26 2010

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