All will be OK, sure, in 50 years maybe

James Butler, a Cape Town neurologist, argues — in the tradition of psychologist Daniel Kahneman, a co-recipient of the Nobel prize for economics — that the human brain is remarkably prone to bias and pessimistic herd thinking. When amplified by the pervasive negativity of mainstream and social media, this has resulted in many believing SA’s problems are insurmountable and that it’s doomed to become Africa’s next basket case, another Zimbabwe.

Butler warned, in an opinion piece in the Daily Maverick, that this flawed thinking, which is based on factual inaccuracies, biases and fear, must be resisted or it will fuel SA’s skills and capital exodus and become selffulfilling. He concedes that SA’s problems are substantial — including poverty, Eskom, debt, corruption, unemployment — but argues that other countries have solved similar problems. Just look at how SA got a handle on its HIV/Aids epidemic.

In short, his message is that SA should avoid extrapolating from its fearful mood that the future will look as bad as today. Rather, it should take heart from historical trends, which suggest SA is more likely to revert to the developing-country mean over time than remain an outlier like Zimbabwe.

I’ve previously argued, like Butler, that SA has many positive attributes and that if a strong leader adopted the right economic policies growth would slowly recover. But I’m far from heartened by his argument that everything will be OK in the end as long as the end is 50 years from now.

I would rather not live through another 10 wasted years and I doubt the country could take it. As the great British economist John Maynard Keynes wrote in 1923: “The long run is a misleading guide to current affairs. In the long run we are all dead.”

Most people are familiar with the fact that SA’s real GDP growth has slowed in nearly each of the past eight years; per capita growth has been negative for the past five years; and that SA’s debt-to-GDP ratio doubled from 24% in 2008 to 50% in 2015/2016 and is now about 60%. Before the coronavirus outbreak it was budgeted to hit 71% by 2022/2023. The outcome will now be far worse.

But what many still don’t fully understand is that these are not cyclical variations around some positive trend that will resume once the Zuma years, or the coronavirus outbreak, wash out of the data. According to a Reserve Bank economic note, the real story of the postcrisis SA economy is of “a huge, negative productivity shock” caused in part by intensifying corruption and misgovernment.

This trend is visible in the fact that SA’s total factor productivity growth has declined every year since 2001 and turned negative from 2014. It’s also visible in SA’s falling investment efficiency, as measured by the incremental capital-output ratio (Icor).

Historically, it has taken SA about three-and-a-half to six units of investment to generate a unit of output. Over the past decade, the incremental capitaloutput ratio has steadily worsened . It now requires 12 units of investment to generate a unit of output.

The Bank estimates that SA’s falling investment efficiency may have more than halved its growth potential in recent years. This trend is of deep concern and is likely to continue as load-shedding becomes a structural feature of our economic landscape.

SA does not have unlimited time to reverse these entrenched structural trends. Covid-19 has brought the fiscal cliff forward by 10 years, right onto SA’s doorstep. The coronavirus outbreak aside, SA cannot expect an optimistic future if it continues to make bad policy choices, or makes none at all while things slide into disrepair (think e-tolls, Eskom and the widespread dysfunction in local government).

SA, of all countries, cannot afford continued policy uncertainty and mistakes. Our population is exceedingly poor and vulnerable and we cannot put it through the misery of another 10 wasted years.