Bread has changed but dough is still low

In media interviews and other public engagements I am often asked to make sure I highlight the relevance of various economic topics to ordinary people’s lives.

This is as if ordinary life is divorced from economics. But I understand the anxiety behind that question, because the disciplines of economics and business are often presented in ways that are too abstract for even the informed observer to make meaningful connections.

Economic questions have always been personal for me.

Like many children, one of my earliest significant chores was going to the local shop almost daily to buy bread and other necessities.

A simple task, it was also the chore that exposed us, very early, to the realities of life.

During breaks at primary school, in our youthful way we talked about the cost of living as we experienced it in the late 1980s. We speculated about the forces that drove the prices so high so quickly.

But our speculation was not restricted to the price of bread. We wondered why the factories in the nearby Babelegi industrial park paid so little in the face of the rising cost of living. Or why only white people owned factories there.

When I look back, I see three main forces that shaped my economic awakening as a child. The most immediate to my mind was inflation. I constantly had to reorient myself on the amount of goods a rand could command. At the same time, as we observed the world around us, the boundaries of economic exclusion became apparent. Black, poor and peri-urban, it was clear on which side we stood. There were other boundaries, between those who earned monopoly rents from the few business licences the homeland government deigned issue and those who had to hustle on the side of the road hoping to catch foot traffic headed to the factories.

But the most visible, most talked about development in my part of the world, even to this day, was the decline of factory production in Babelegi. Those subsidised firms, in the middle of “nowhere”, were the lifeblood of the local economy. When that support did not continue in the 1990s, many of them collapsed. As did the livelihoods of not just the workers affected directly, but the households that had pursued multiple sources of income off the back of economic activity in the industrial park.

It was a devastating experience that raised some of economics’ most heavily contested questions.

During my economics and business journey, I quickly found the simple answer. Industrial policy based on subsidies to prop up activities that are not commercially viable on their own merits is not sustainable. It merely distorts incentives and postpones a hard reckoning with productivity.

But one of my graduate lecturers, the late Sanjaya Lall, and many others have developed a body of work that documents how some successful emerging economies, mostly in Asia, have undergone a process of technological upgrading, through the smart deployment of the tools of industrial policy. Targeted state support led to learning-by-doing and the development of enduring capabilities.

Not so for Babelegi. Not so for the manufacturing sector in SA. Not so for many other countries in Latin America and the rest of Africa suffering from what economist Dani Rodrik calls premature deindustrialisation.

This remains one of the central questions of our age: how to nurture highproductivity activities that go beyond the manufacturing sector in an open and competitive global economy?

The preoccupations of my youth remain painfully relevant today, with added complexity as we witness another major shift in technology and economic organisation. Of course, there have been positive changes. One does not have to worry about price stability as much.

But the quest for a just and prosperous economy continues.