Downside aspects of globalisation thrive where the state is weak

The burning question for South Africans is what it will take to improve our game in the midst of deviant trends

The deep fault lines in the global economy are increasingly being voiced by leading elites in many countries and international institutions. At the Group of 20 meetings in 2016 in Hangzhou, China, Australian Prime Minister Malcolm Turnbull spoke of the need to “civilise capitalism” and International Monetary Fund head Christine Lagarde said growth had been “too low for too long for too few”.

Martin Wolf of the Financial Times argues eloquently that “to maintain legitimacy economic policy must seek to promote the interests of the many and not the few”.

These statements echo increasing concern with the current trend in globalisation, which is fuelling populism in many countries. Yet few global solutions are offered. The answers we provide will have to begin at home. The fact that these issues have been raised in international forums and will be raised again at many other forums, should spur national governments to come up with more creative solutions that advance the interests of the national economy.

This is not necessarily in conflict with globalisation but there are implications for a country like ours, in particular as state capture has taken hold and revealed the most radical experiment at subverting meaningful development and inclusive growth to one of deviant development and deviant governance.

Globalisation offers many positives, but also some negatives. While it has produced enormous prosperity and growth, at the same time, it has sustained a high degree of inequality. In one other respect, it has made good governance more difficult: it has changed the rules of the game. Why is this so?

Put simply, it has made deviant globalisation equally possible alongside mainstream globalisation. The notion of deviant globalisation is put forward by Nils Gilman of the University of California. This way of looking at globalisation can enhance our understanding of how global trends can negatively affect the domestic economy.

Good globalisation enables connectivity, openness and integration. Benefits arise from ideas. Knowledge flows from greater connectivity as information flows faster and in real time. It can also be made more inclusive, what can be termed “inclusive globalisation”.

Bad globalisation has to do with exclusion, whereby the losers are left out in the cold. Dani Rodrik of Harvard University refers to this as “hyperglobalisation”. This is evidenced by the growing gap between the elite and the rest of society and the drift towards populism.

Deviant globalisation functions side by side with mainstream globalisation. Cross-border integration facilitates trafficking drugs, women and children, but ultimately, it enables the easy movement of money.

As Gilman puts it, “the most critical point to understand about deviant globalisation is that it is inextricably linked to and bound up with mainstream globalisation: we cannot have one without the other. Both are market-driven activities. Both are enabled by the same globally integrated financial, communication and transportation systems. Both break down boundaries — political, economic, cultural, social and environmental — in a dynamic process of creative destruction”. While we know entrepreneurial development is a positive aspect of development, as Gilman puts it “deviant entrepreneurs are some of the most audacious experimenters, risk-takers, and innovators in today’s global economy. In their relentless bid for competitive advantage, they engage in just about all of the activities that other entrepreneurs do – marketing, strategy, organisational design, product innovation, information management, financial analysis, and so on. In many cases, they create enormous profits that meaningfully contribute to local development while also extruding inefficiencies from huge markets.”

Deviant globalisers are not interested in the broader objective of serving the public interest. They are nonstate actors who extract from the state and ultimately undermine state legitimacy and weaken it. The deviant entrepreneurs’ primary focus is to steal from the national pie and not grow it. In this sense, they are not only deviant, but also unproductive since their energies are focused on rent-seeking, political connections and activities that undermine the capability of the state.

The question that is often posed by well-meaning South Africans is how we got to the current state of affairs. Or, put differently, how have we sunk so low? The point is that deviant globalisation thrives in environments where the state is weak.

Deviant entrepreneurs do not start out on the premise of being political actors whose objective is to capture or control the state. Their aim is to maximise their accumulation strategy, but this can take on a life of its own. It does not stop, which lays the basis for weakening institutions and eroding state capability, redirecting it to serve the patronage network.

This is well captured by Raghuram Rajan of the University of Chicago: “A strong government does not necessarily depend on military power or dictatorship. Strong governments are ones that provide citizens with public goods that enable them to have a decent life. No matter how thuggish or arbitrary the government in a tin-pot dictatorship, these are weak governments, not strong ones. Their military or police can terrorise the unarmed citizenry, but cannot provide decent law and order, or stand up to a determined armed opposition. Their administrations cannot provide sensible economic policy, good schools or clean drinking water. Strong government needs to be peopled by those who can provide needed public goods — it requires expertise, motivation and integrity.”

The global economic crisis, which originated in the US in 2007, shows the fragility of the global economy and that countries have become increasingly interconnected through global megatrends, but equally through deviant trends such as illicit flows of capital.

We face a troubled world, as well as a domestic economy. However, for South Africans, the media exposure of state capture poses a key and overriding problem. Our domestic political economy is rapidly tilting in favour of rent-seekers and not wealth-creators.

Questions that arise, in particular for policy makers or guardians of the national interest, are: how do we ensure that globalisation works for the many and not only the elite? How do we ensure that finance ignites the real economy and incentivises innovation? How do we increase the volume of employment and decrease marginalisation and inequality? How do we remedy global imbalances that facilitated the global crisis? How do we ensure that corporations pay their due in tax, as opposed to base erosion and shifting income tax? How do we take on vested interests versus public interests? How do we ensure better governance and inclusive growth?

The nub of the problem rests with the political economy of governance, or, put differently, what type of economy we want. It will be a policy mistake that will cost us dearly if we ignore this issue in our project of building institutions and capability towards a more inclusive economy and society.

This requires a broader societal response, and cannot be simply left in the hands of dominant forces, which themselves have vested interests. These are real concerns that lie beneath the political and economic debate in the country.

Vested interests are increasingly capturing higher returns. Connectivity to government gives rise to contracts. Influence and political connections create access. In our case, it is not only patrimonial capitalism but rentier capitalism that weakens our economy. The attraction of easy money through investment in political connections disincentivises entrepreneurship away from productive investment and innovation.

It is possible to think of technocratic solutions to pull us out of the current trap through better regulation and governance. This demands a different politics and a capable bureaucracy with sound and strong institutions that cannot be stifled by deviant forces at work. In advancing our democratic project, we must avoid constructing our future path in terms of a “them” and “us”. It must be an approach that advances the national interest, and inclusion must be an integral part of that growth project.

Seven years after the start of the global economic crisis, the global economy remains risky, volatile and uncertain. The problems facing the South African economy signal the need for a narrative that explains public policy and generates political support for it. This narrative must also be able to express anxieties and generate realistic hope. The electorate will not be fooled by slogans and cheap politics.

The burning question for South Africans is not only how we navigate through global uncertainty and risks, but can we become more resilient and globally competitive? What will it take and can we up our game? Can we induce a sense of urgency in undertaking reform?

These questions confront not only SA but also other emerging markets such as Brazil, which is drowning in a sea of corruption. The challenge is to confront our concerns, but at the same time elevate the public discourse and rise beyond parochial interests. Many countries with acute problems have done so and there is no reason why SA cannot too.

We may not be a failing state as yet, but we are increasingly veering towards a deviant state, which makes us less attractive to investors. The struggle between good governance and deviant governance is real. This demands not only policy creativity but new forms of creative activism by those who have the national interest at heart.