How to get SA grow­ing

South Africans would ben­e­fit greatly if the coun­try’s state-owned en­ter­prises were to be pri­va­tised.

Finweek English Edition - - OPINION - By Brian Kan­tor ed­i­to­rial@fin­week.co.za Brian Kan­tor is chief econ­o­mist and strate­gist at In­vestec Wealth & In­vest­ment. To stand a chance to win a copy of Kan­tor’s book, see the quiz on page 45.

there is a clear and highly re­al­is­tic way out of our poverty trap, and that is to let all our peo­ple ex­er­cise much more free­dom to help them­selves im­prove their eco­nomic cir­cum­stances. In other words, we should al­low the econ­omy to rely much more on highly com­pet­i­tive mar­ket forces to de­ter­mine out­put, in­comes, jobs and wages. There is over­whelm­ing sup­port from eco­nomic his­tory, es­pe­cially from the re­cent im­mense poverty re­duc­tion achieve­ments of many Asian economies, of how it is pos­si­ble to lift bil­lions of peo­ple out of ab­so­lute poverty by us­ing the power of the mar­ket­place.

South Africa could be play­ing much more to its ob­jec­tive strengths – the com­pe­tence and com­pet­i­tive­ness of estab­lished busi­nesses and new en­trants to busi­ness to ef­fec­tively de­liver goods, ser­vices, em­ploy­ment and in­comes.

Busi­nesses are also highly ca­pa­ble of do­ing much more for their stake­hold­ers; not only for their own­ers, but also their cus­tomers and em­ploy­ees. Busi­ness own­ers, of­ten pen­sion and re­tire­ment funds who man­age most of our sav­ings, are rapidly be­com­ing racially rep­re­sen­ta­tive of the work­force. This is some­thing ig­nored so op­por­tunis­ti­cally by the pol­i­tics of em­pow­er­ment.

In my book Get SA Grow­ing, I try to build trust in, and re­spect for, mar­ket forces by ex­am­in­ing and ex­plain­ing what goes on in our econ­omy and how and why it could be bet­ter or­gan­ised for the ben­e­fit of nearly all of us – es­pe­cially for the many des­per­ate poor.

We should have more re­spect for the rights of in­di­vid­u­als to make their own de­ci­sions and bear the con­se­quences of them. We should not al­low adults who have the power to elect their gov­ern­ment to be treated as if they were chil­dren in need of close su­per­vi­sion – an as­sump­tion of­ten con­ve­nient for politi­cians and the of­fi­cials who di­rect gov­ern­ment spend­ing on their be­half. Pri­vate providers of goods and ser­vices, now sup­plied by gov­ern­ment agen­cies, would treat peo­ple much more as val­ued cus­tomers rather than as sup­pli­cants.

Pri­vati­sa­tion of the de­liv­ery of ben­e­fits – cur­rently funded by the tax­payer – would pro­duce much bet­ter re­sults, es­pe­cially in ed­u­ca­tion where the spend­ing and tax bur­den is a heavy one and the out­comes so dis­ap­point­ing. The ex­tra skills that would com­mand em­ploy­ment and higher in­comes are sim­ply not emerg­ing well enough. Rad­i­cal re­forms are re­quired that would make pub­lic schools and hos­pi­tals pri­vate ones. Pub­lic en­ter­prises should be con­verted into more ef­fi­cient pri­vate ones that would not trans­late losses and poor oper­at­ing pro­ce­dures into ever-in­creas­ing pub­lic debts. Pri­vati­sa­tion pro­ceeds could be used to pay off the ex­pen­sive pub­lic debt. A much greater reliance on and en­cour­age­ment for the free play of mar­ket forces is called for in SA. Much less should be ex­pected from well-mean­ing na­tional devel­op­ment plans or from hon­est gov­erned state-owned cor­po­ra­tions to de­liver the es­sen­tial jobs, goods and ser­vices.

Per­haps even more dan­ger­ous to the well-be­ing of all South Africans would be to pro­vide even greater op­por­tu­nity for do­ing gov­ern­ment busi­ness, funded by tax­pay­ers, on highly favourable (non-com­pet­i­tive) terms with the po­lit­i­cally well-con­nected few. The newly pro­mul­gated Min­ing Char­ter is an ex­er­cise in ex­treme crony cap­i­tal­ism that will un­der­mine the fu­ture of min­ing in SA and its abil­ity to cre­ate in­comes, jobs and tax rev­enues. (Im­ple­men­ta­tion of the Char­ter has since been sus­pended.)

Faster eco­nomic growth would be truly trans­for­ma­tional. We should build on the strengths we have – skilled hu­man cap­i­tal that is glob­ally com­pet­i­tive, yet so vul­ner­a­ble to em­i­gra­tion – and on the proven abil­ity to raise fi­nan­cial cap­i­tal from global mar­kets when the prospects are favourable. Faster growth would greatly stim­u­late the up­ward mo­bil­ity of an in­creas­ingly skilled black pop­u­la­tion. The up­per reaches of the econ­omy could soon be­come as racially trans­formed as the ranks of the mid­dle-in­come classes. And the very poor and less skilled (now mostly not work­ing) would ben­e­fit greatly from in­creased com­pe­ti­tion for their in­creas­ingly valu­able and scarce ser­vices. Forc­ing trans­for­ma­tion of the lead­ers of the SA econ­omy would have the op­po­site ef­fect. It would mean fur­ther eco­nomic stag­na­tion and in­creased re­sent­ment of higher in­come South Africans.

I hope that my book will make it more likely that the eco­nomic fu­ture of SA will be de­cided in a less racially charged way, with more reliance on mer­i­to­cratic mar­ket forces. SA in fact un­der­takes an ex­tra­or­di­nary de­gree of re­dis­tribut­ing earned in­comes, un­equal be­cause the valu­able skills that com­mand high in­comes are so un­equally dis­trib­uted. Un­usual amounts of in­come are cur­rently taken from the very well off to fund gov­ern­ment ex­pen­di­ture – judged by the prac­tices of other economies with com­pa­ra­ble in­comes per head. But eco­nomic stag­na­tion has now se­verely lim­ited the ca­pac­ity to help the poor. With higher growth, more of the re­sult­ing higher in­comes can be re­dis­tributed to the least ad­van­taged – hope­fully with much more help from pri­vate sup­pli­ers of the ben­e­fits pro­vided.

Growth and re­dis­tri­bu­tion is very pos­si­ble for SA – should we change our ways and grow faster. ■

Faster growth would greatly stim­u­late the up­ward mo­bil­ity of an in­creas­ingly skilled black South African pop­u­la­tion.

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