Policies that tap worldwide buying power would make poverty history
By overindulging redistribution and pursuing politically opportunistic quotas, SA has impeded broad prosperity
Fiscal repackaging along with jobs and investment summits are mostly political manoeuvres. SA’s binding constraints can be traced to policies that are incompatible with global opportunities. If internationally proven policies were adopted, stimulus would be unnecessary as investments and job growth would surge.
President Cyril Ramaphosa has joined many disparate voices lamenting inadequate demand while yearning for improved sentiment. Such views are misplaced. SA’s purchasing power is woefully inadequate relative to the nation’s poverty burden. That is, most South Africans will remain poor — risking political, and thus economic, instability — unless the country’s longterm growth rate is sharply improved. That can only happen through policy pivots sufficient to surge value-added exports.
Currently, a radical fringe party such as the EFF can hush constructive discourse with chants of “white monopoly capital” and “expropriation without compensation” because the intersection where powerful solutions should compete resembles a desolate roundabout. This wouldn’t happen if agreement that poverty reduction is the top goal leads to solutions focused on tapping global spending power, which is roughly 200 times greater than SA’s.
As a majority of South Africans get by on less than R40 per day, there should be broad consensus to make poverty reduction the country’s top priority. Yet today’s contorted policies and debates spotlight how elusive such a consensus is. By way of comparison, trends suggest that by 2030 extreme poverty is likely to decline to 3% globally — excluding sub-Saharan Africa where, as in SA, poverty is rife and rising.
Poverty far outranks other economic priorities. When rich or high-growth countries contend with stark income disparities, that is vastly different from SA’s plight, in which most young adults are unlikely to ever be formally employed or escape poverty. Increasing the number of black executives should be an adjunct to spurring growth. Instead, politically opportunistic quotas have impeded prospects for broad prosperity.
SA must integrate far more meaningfully in the global economy, yet this domestic-global disconnect stems from a society-wide disconnect between politics and economics. Implicit in the midst of the 1990s’ political transition was a commitment to spur upliftment through redistribution. How this was to be accomplished was, as they say, “to be determined”.
Managing redistribution always needed to be a moderate part of the growth equation. Rather, unchecked political dynamics allowed overindulged redistribution reflexes to devastate growth prospects. Belief in redistribution unites disparate elements of the ANC and it is popular among the majority of voters. Excessive faith in redistribution has been a gateway to discredited ideologies, along with favouring narrow interests, thus flattening long-term growth prospects.
While responsibility for the state of the domestic economy rests with the ANC, blame for a dysfunctional national dialogue is more widely shared. Navigating SA’s contorted maze of emotive issues should draw from knowledge spanning social justice fundamentals, 21st-century commercial principles and economic development drivers. It is also helpful to appreciate how the world’s multigenerational path to pummelling poverty was littered with widely distributed injustices.
The goal should be halving poverty within, say, 25 years. While dozens of countries have achieved such profound poverty reductions, SA’s overreliance on redistribution-focused policies precludes even modestly similar success.
In most countries politicians are impeded from exploiting historical grievances by regional rivalries. Being outpaced by a neighbouring country motivates voters to support pro-growth policies. Persisting negative repercussions from overindulging historical grievances are best spurned by policies that spur high growth. Such successful policies are often created the oldfashioned way: they are “borrowed” from highflying regional rivals. Political pressure arising from the success of regional rivals is absent here. Thus advocating that growth be prioritised ahead of redistribution comes across as tendentious.
Spawning exceptional CEOs is a formidable national strength, but until recently the ANC has routinely rebuffed their policy suggestions. Now that public-private dialogues are improving, the CEOs are ill-prepared to design broad poverty reduction strategies.
The nation’s premier think-tanks regularly contribute invaluable analytical insights, as do external actors such as the IMF and the credit agencies. But for the ANC’s new leadership direction to pivot towards a long-term growthfocused strategy, insightful analysis must inform a clear, workable path. ANC policymakers have routinely travelled to distant lands and been inspired by the successes they witnessed without recognising how their decisions precluded similar successes at home.
The governing party and the official opposition are both tilting, albeit inconsistently, towards resisting racial politics. This should make it easier to shift from overindulging redistribution to prioritising growth.
While the depth of Ramaphosa’s socialist sympathies are unclear, the door has opened to supporting commercially robust strategies for creating jobs and pummelling poverty. This requires that the national dialogue rapidly advance. Policy shifts could then begin with the government providing special dispensations for new export initiatives. Supporting entrepreneurs that develop new export channels must be prioritised by policymakers and big business.
The official opposition would not have insouciantly sacrificed the electoral advantages of choosing a black person as their candidate for premier of the Western Cape. That a white male prevailed presumably reflects his unparalleled expertise at creating jobs through increasing value-added exports.
The ANC will have to de-emphasise redistribution to support exports. To encourage such a politically difficult pivot, SA’s national dialogue must first become internationally grounded. The conceit that SA has sufficient purchasing power to fuel adequate growth must be purged. There must be greater recognition that the EFF’s rising voter appeal and disruptive capabilities stem from the politically destabilising volume of entrenched poverty.
Far too many South Africans are perpetually poor, while global poverty is in steep decline. Political freedom was to have triggered economic freedom — or at least getting a half-decent job. With a majority of young people stranded before they can get started, the country’s future is imperilled. Social justice happens when pursuit of aspirations quietens historical grievances.
Today’s commercially robust economies emphasise global integration and accessing deep consumer markets. Poor people selling to poor people remain poor. Investors are eager to fund companies that can competitively sell products and services into the world’s deep consumer markets. Seeking capital without having policies supporting export-led growth morphs into an exercise in borrowing money to fund deficits.
Understanding how economies develop is normally a formidable undertaking. However, a quick sense can be achieved by contrasting China’s hugely successful development policies with SA’s on diffusing knowledge, virtuous cycles, rural-urban migration, export-led growth, high household savings and, ultimately, the creation of a large, sustainable middle class. SA has scored poorly on all counts except rural-urban migration. Now “expropriation without compensation” consumes a major chunk of the national economic dialogue.
That China had remarkably modest purchasing power in 1978 inspired a committed pivot. Exporting was the only option. SA’s circumstances seem quite different, yet the similarities are key. Policymakers must accept they cannot spur growth through overregulating domestic activities. They must focus on supporting exports.