Lockdown decision was bold, justifiable and unaffordable

We must follow our president ’ s example. Just last month President Cyril Ramaphosa was punting the fantasy of a sovereign wealth fund. To then declare a lockdown needed intellectual fortitude. We the people must also dispatch our delusions.

SA’s sovereign debt, along with much commercial and household debt, must be restructured. The good news is that sustained high growth can follow. Yet this requires broad policy reversals, whereas February’s state of the nation address and budget speech made clear that the government had ceased to pursue a high-growth path. Leaders outside government have also not offered workable growth plans.

Before the coronavirus challenges, the economy was gradually imploding due to policies and practices that survived last May’s election unscathed. As most South Africans survive on less than R50 per day, the ANC prioritising redistribution over growth is as politically popular as it is economically destructive. But what explains that leaders outside government cannot produce a powerful plan?

While a generous share of world-class business leaders is advantageous, their policy input has been unwanted. Nor can they offer packaged solutions. This is normal. The medical profession doesn’t expect surgeons to resolve a viral pandemic. Business leadership and economic policy expertise are separate disciplines.

As SA’s politics shifted dramatically in the early 1990s, the global economy pivoted no less profoundly. The trade-focused integration of rich and poor economies then pummelled global poverty. SA’s policymakers rejected such growth-based poverty thumping to favour layers of redistribution legislation, which eventually entrenched stagnation.

Our economy and healthcare system are profoundly unprepared’for Ramaphosa s lockdown the coronavirus challenges. decision was bold, justifiable and unaffordable. The private sector’s highly dispersed problem-solving capacity will need to be urgently unleashed while we simultaneously restrict the virus’s ability to spread. The government’s power-seeking instincts must be carefully calibrated to allow private enterprise to spawn creative solutions.

SA’s sophistication at commercial and capital markets economics is unaccompanied by the economic development expertise that fuels rising household prosperity through global integration. We largely missed out on the worldchanging acceleration in global integration and we are woefully wrong-footed for the shifts that are taking shape. SA can only achieve sustained high growth through surging value-added exports.

As many nations now expand their governments’ economic involvement while recalibrating their global integration, SA must nimbly exploit the ensuing opportunities through shrewd countersteering. A mindset conversion as dramatic as the lockdown is needed — but in the opposite direction.

What holds us back is “wilful blindness”. A book of the same name unpacks how individuals and groups frequently choose not to see realities that challenge their values. We bought into the false palliative of redistribution-focused economic policies. It seemed to offer justice to the previously disadvantaged and a sort of redemption for the prior regime’s beneficiaries.

“Wilful blindness” is also a legal concept. Choosing not to know is no defence. As a nation we have chosen to be ignorant of economic development basics. There is little appreciation of the reason for chronic poverty retreating globally in recent decades. Or why SA’s poverty alleviation progress, which began in the 1990s, was never sustainable and has long since been reversing.

AS A NATION WE HAVE BOUGHT INTO THE FALSE PALLIATIVE OF REDISTRIBUTIONFOCUSED ECONOMIC POLICIES

“Wilful blindness” explains why people prefer to embrace their values rather than expand their understanding.

A follow-the-money analysis of SA’s economy shows how legislation dictates that funds flow from productive segments to those that are well positioned politically and those most marginalised. Progress is elusive as those who should be achieving sustainable middle-class status are restrained by excessive reliance on overpriced debt.

At a tragic cost SA is likely to develop herd immunity to the coronavirus in the next several months. For the economy to become healthy and resilient, we must pivot policies towards the global norms that provoke broad prosperity. We can each contribute by distancing ourselves from economic development ignorance.

Hagedorn is a strategy consultant with a background in accounting, banking and investment analysis in New York and London. He has a graduate degree in international business and qualifies as a CPA and CFA.