Bro­ker­ing a New Deal for SA

With the 1994 Con­sen­sus hav­ing reached its limit, an am­bi­tious SA needs to em­brace the three ‘na­tional ob­ses­sions’ of qual­ity ed­u­ca­tion, build­ing a ca­pa­ble state and achiev­ing in­clu­sive growth, writes

CityPress - - Voices & Careers -

Acom­bi­na­tion of ex­ter­nal and in­ter­nal fac­tors will make the next few years dif­fi­cult for South Africa to nav­i­gate. The 2017 World Eco­nomic Forum in Davos high­lighted a con­tin­ued weak global eco­nomic out­look, ris­ing global in­equal­ity and the emer­gence of pop­ulism and eco­nomic na­tion­al­ism, il­lus­trated by Brexit and the elec­tion of Don­ald Trump as US pres­i­dent. This brings a num­ber of risks for emerg­ing economies such as South Africa, which are highly de­pen­dent on ex­ter­nal sources of cap­i­tal and mar­kets.

Our coun­try faces a com­bi­na­tion of sus­tained low rates of eco­nomic growth – more pro­nounced since 2008, and pre­dicted to con­tinue over the next few years – along with an en­dur­ing con­cen­tra­tion of own­er­ship (mean­ing higher so­cioe­co­nomic re­turns con­tinue to ac­crue to those al­ready en­dowed with cap­i­tal and skills), chron­i­cally poor ed­u­ca­tion and train­ing out­comes (de­spite the not in­signif­i­cant per capita spend­ing on ed­u­ca­tion), and pa­tron­age and cor­rup­tion as­so­ci­ated with rents con­trolled by the state.

In ad­di­tion, short-ter­mism and pop­ulism are on the rise, fed by the grow­ing rest­less­ness of our peo­ple, who are not blind to the ob­scene in­equal­ity which abounds and who are los­ing hope in a fu­ture of shared pros­per­ity.

Faced with these chal­lenges, the 1994 Na­tional Con­sen­sus has reached its limit. These ne­go­ti­a­tions re­sulted in a po­lit­i­cal and class com­pro­mise which:

Safe­guarded the in­ter­ests of the ex­ist­ing (white) eco­nomic elite;

Cre­ated a new black elite, pri­mar­ily through state em­ploy­ment and rents;

Put in place a ro­bust sys­tem of demo­cratic ac­count­abil­ity;

Pro­vided a more se­cure and reg­u­lated labour mar­ket for the or­gan­ised work­ing class; and

Es­tab­lished a com­pre­hen­sive sys­tem of fis­cal re­dis­tri­bu­tion for the poor (with a grow­ing so­cial se­cu­rity sys­tem).

There is no doubt that the 1994 Con­sen­sus – es­pe­cially the wel­fare spend­ing com­po­nent – brought sig­nif­i­cant so­cial re­turns in re­duc­ing ex­treme poverty and vul­ner­a­bil­ity, and ex­tend­ing ac­cess to ba­sic ser­vices.

The ro­bust sys­tem of ac­count­abil­ity and the demo­cratic in­sti­tu­tions we es­tab­lished pro­vide crit­i­cal checks and bal­ances to those en­trusted with the con­trol of state ad­min­is­tra­tion and co­er­cion. But we must ac­cept that this Con­sen­sus has be­come un­vi­able and will un­ravel if not com­bined with a New Eco­nomic Con­sen­sus. South Africa re­mains locked in a cap­i­tal-in­ten­sive, en­ergy-in­ten­sive and highly fi­nan­cialised his­toric growth path, which:

Re­pro­duces self-serv­ing rent-seek­ing by the old white, for­eign-owner and new black ren­tier classes;

Is too de­pen­dent on fi­nan­cial in­flows and com­mod­ity booms, mak­ing the econ­omy vul­ner­a­ble to global shocks;

Cre­ates very lit­tle new wealth in the pro­duc­tive econ­omy; and

Ex­cludes large num­bers of South Africans from par­tic­i­pat­ing ei­ther as own­ers of cap­i­tal or as em­ploy­ees.

Most eco­nomic play­ers will agree that the econ­omy is long over­due for trans­for­ma­tion and reform. The points of de­bate cen­tre on these ques­tions: What ex­actly should change, and how should this be achieved?

In ad­vanc­ing solutions to our cur­rent predica­ment, we need to ac­cept that high in­equal­ity and low growth are mu­tu­ally re­in­forc­ing. High in­equal­ity leads to low growth and stag­na­tion be­cause it re­duces de­mand. Low growth re­duces fis­cal re­sources avail­able for re­dis­tri­bu­tion, as well as em­ploy­ment and wealth-cre­at­ing op­por­tu­ni­ties.

How­ever, in­equal­ity can­not be re­duced only through fis­cal re­dis­tri­bu­tion be­cause it is rooted and re­pro­duced in the struc­ture of the econ­omy, which we need to un­der­stand if we are to trans­form. There is much talk cur­rently about white mo­nop­oly cap­i­tal. His­tor­i­cally, white mo­nop­oly cap­i­tal played a core role in re­pro­duc­ing South Africa’s highly un­equal econ­omy.

In the mid-1980s, 83% of JSE shares were owned by four gi­ant com­pa­nies, all owned by white South Africans, who con­trolled eco­nomic ac­tiv­ity in min­ing, fi­nance, the in­dus­trial sec­tor, agribusi­ness and re­tail.

Since then, the struc­ture of cap­i­tal has changed sig­nif­i­cantly, hav­ing be­come in­creas­ingly “fi­nan­cialised”, with in­vest­ment be­ing di­verted from fixed cap­i­tal into high-re­turn (of­ten speculative) fi­nan­cial in­vest­ment. In­deed, slo­gans are a poor sub­sti­tute for care­ful anal­y­sis and facts.

To­day, some of the largest seg­ments of white mo­nop­oly cap­i­tal have glob­alised, with pri­mary share list­ings in for­eign stock ex­changes and mas­sive in­ter­ests and in­vest­ments else­where in the world – far sur­pass­ing their in­ter­ests in SA.

Many of our large con­glom­er­ates have un­bun­dled. An­glo Amer­i­can, for ex­am­ple, has nar­rowed its fo­cus mainly to min­ing and has shed hold­ings in other sec­tors. The un­bundling of An­glo’s man­u­fac­tur­ing in­ter­ests in the 1990s was closely as­so­ci­ated with ac­cel­er­ated dein­dus­tri­al­i­sa­tion in South Africa, and has con­trib­uted di­rectly to man­u­fac­tur­ing dis­in­vest­ment and loss of ca­pa­bil­ity in key value chains.

The same lib­er­alised cap­i­tal con­trols that al­lowed our large con­glom­er­ates to ex­port cap­i­tal and list abroad, means that pri­vate cap­i­tal in our econ­omy is now sig­nif­i­cantly for­eign owned – just un­der 40% of JSE cap­i­tal­i­sa­tion and 50% of the JSE top 40 is for­eign owned.

Much of our gov­ern­ment debt – about 40% – is also fi­nanced through for­eign sav­ings, which is why we take our in­vest­ment sta­tus and re­lated costs of bor­row­ing se­ri­ously.

Un­der­stand­ing these changes has enor­mous im­pli­ca­tions for how we en­gage cap­i­tal in our project to re­struc­ture the econ­omy. Much of the cap­i­tal we lump into the cat­e­gory of white mo­nop­oly cap­i­tal is highly mo­bile, fi­nan­cialised and in­ter­na­tional in ori­en­ta­tion. Glob­ally, this for­eign-based big cap­i­tal is driven by short-term share­holder max­imi­sa­tion and own­er­ship traded in highly liq­uid mar­kets.

This se­ri­ously lim­its our abil­ity to draw this cap­i­tal into a na­tional de­vel­op­ment project. And, given our low lev­els of do­mes­tic sav­ings and cur­rent lev­els of gov­ern­ment in­debt­ed­ness, we must ac­cept that dis­in­vest­ment at scale is a real threat to na­tional sovereignty.

We must also avoid re­duc­ing trans­for­ma­tion to black rentseek­ing re­plac­ing white rent-seek­ing. Eco­nomic trans­for­ma­tion is not sim­ply about in­creas­ing black own­er­ship of the large JSE-listed cor­po­ra­tions to the cor­re­spond­ing re­duc­tion of South African white and for­eign own­er­ship.

Even if this could be ac­com­plished with­out dis­rup­tions such as cap­i­tal flight, it will not re­duce over­all in­equal­ity – in fact, in­equal­ity could in­crease.

We must also lever­age the role of state cap­i­tal in South Africa’s econ­omy. The state cur­rently owns and con­trols about 30% of the econ­omy in highly strate­gic sec­tors, in­clud­ing state bank­ing, in­for­ma­tion technology, en­ergy, trans­port, aerospace and the weapons in­dus­try, and com­mu­ni­ca­tion. In ad­di­tion, the state owns about 25% of land and has an ar­ray of reg­u­la­tory and ad­min­is­tra­tive ap­pa­ra­tus to in­flu­ence the be­hav­iour of cap­i­tal.

Hard ques­tions must be asked about whether we are de­riv­ing op­ti­mal growth and in­equal­ity re­duc­tion out­comes from this state cap­i­tal. We must also look at how our pen­sion funds and union in­vest­ment funds can be bet­ter geared to in­crease fixed in­vest­ment in the econ­omy.

So, what is to be done? It is ev­i­dent that the co­in­ci­dence of un­favourable global con­di­tions, the lim­i­ta­tions of the 1994 Con­sen­sus and the grow­ing recog­ni­tion that we are stuck in a high in­equal­ity-low growth trap im­plies that we ur­gently con­struct a new con­sen­sus to trans­form the econ­omy to­wards more equal and higher growth.

In con­fronting these chal­lenges, we need to con­sider a New Eco­nomic Con­sen­sus de­rived from three na­tional ob­ses­sions:

A na­tional ob­ses­sion with in­clu­sive growth, based on fos­ter­ing new lo­gis­tics and tech­no­log­i­cal ca­pa­bil­i­ties that will grow em­ploy­ment, in­comes and ex­ports;

Con­struct­ing a state that is stronger, more ca­pa­ble, less cor­rupt, more peo­ple-cen­tred and more de­vel­op­men­tal; and

Im­prov­ing the qual­ity of pub­lic ed­u­ca­tion and train­ing, to achieve the first two.

A crit­i­cal mass in so­ci­ety – em­a­nat­ing from within the state; the higher ed­u­ca­tion sec­tor; the busi­ness sec­tor, es­tab­lished and new; and labour and civil so­ci­ety, in­clud­ing the me­dia – must be mo­bilised to sup­port a num­ber of pol­icy choices that can rapidly tran­si­tion the econ­omy out of its low-growth and high-in­equal­ity tra­jec­tory.

These three na­tional ob­ses­sions, cas­caded down to lo­cal level and built on dia­logue and strate­gic trade-offs, should form the ba­sis of a new con­sen­sus for in­clu­sive growth.

At the heart of these ob­ses­sions is an un­der­stand­ing that the cur­rent con­junc­ture is not about a choice be­tween ei­ther trans­for­ma­tion or growth. Broad-based black eco­nomic em­pow­er­ment and land reform, for ex­am­ple, can­not sim­ply be about own­er­ship trans­fer, but must grow pro­duc­tive ca­pac­ity, in­clud­ing in­vest­ment, out­put, jobs and ex­ports.

Growth with­out trans­for­ma­tion will ex­ac­er­bate in­equal­ity, lead­ing to in­creas­ing so­cial ten­sions and pro­vid­ing fer­tile ground for the rise of pop­ulism. Trans­for­ma­tion with­out growth will be ac­com­pa­nied by dis­in­vest­ment, ris­ing un­em­ploy­ment, less wealth and fewer as­sets to re­dis­tribute.

And de­creased state rev­enue will lead to a re­duc­tion in fis­cal re­dis­tri­bu­tion – for ex­am­ple, of so­cial wel­fare.

Sim­ply put, with­out growth, trans­for­ma­tion will make us poorer; with­out trans­for­ma­tion, growth will ex­ac­er­bate in­equal­ity, which will make the growth it­self un­sus­tain­able.

Such a con­sen­sus will not be easy to bro­ker, given the vested in­ter­est in the cur­rent sta­tus quo.

Vi­sion­ary lead­er­ship ca­pa­ble of mo­bil­is­ing sup­port across in­ter­ests and sec­tors, and of man­ag­ing spoil­ers, is re­quired. We have no choice. Jonas is deputy fi­nance min­is­ter. For an ex­ten­sive ver­sion of

Jonas’ ar­ti­cle, visit city­press.co.za

TALK TO US What do you think are the prac­ti­cal steps re­quired to em­brace the na­tional ob­ses­sions and achieve a New Eco­nomic Con­sen­sus for SA?

SMS us on 35697 us­ing the key­word GROWTH and tell us what you think. In­clude your name and prov­ince. SMSes cost R1.50

PHOTO: TEBOGO LETSIE

THE DIS­POS­SESSED A young man begs at an in­ter­sec­tion in Dur­ban, KwaZulu-Natal

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