Our economy should be a balancing act
State and private sector must join forces
IT is old news that South Africa is at the top of the economic inequality table of the world, with a Gini coefficient of around 0.7.
So what? In real life, few give a damn about league tables and statistics, but in South Africa we have to — economic inequality is at the core of all our socioeconomic challenges. If we don’t address that now, soon nothing else will matter.
For starters, a polarised population cannot elect a cohesive government, not even close. If you’re torn between having parsley or cheese sprinkled on your scrambled eggs and salmon at Hyde Park, you just don’t have the same priorities as someone who doesn’t have an indoors flushing toilet, and you’re unlikely to agree which leader to pick, let alone allocation priorities in the budget.
Worse still, it’s going to start a fight. It may be true that an army marches on its stomach, but it is hunger that is the common cause of the revolution. Economic prosperity is a precondition for economic transformation, but we need to create wealth, not only distribute it.
The medium-term budget policy statement, a prelude to the next budget, a scene-setter, a heads-up, was delivered in parliament last week.
Cautious and considered, strengthened with learned quotes from leaders past and refreshed with sprinkles of welcome humour, the context so delivered was perhaps the best we could have hoped for in difficult circumstances, but we may not pull it off.
In the end, there was no latitude but to conclude that we have to cut spending and increase taxes, if we are to get by, not an unfamiliar refrain. Even if we get that, we will need growth, lots of growth. A tall order, as we flounder in a sea of uncertainty, with no prospect of a growth rescue ship in sight.
The problem is that you can’t keep taxing the rich and retrenching the poor, not if there isn’t a middle class to step into the breach. Growth and austerity are not close cousins. We’re in trouble.
But there are solutions, if we accept, among others, the following axioms:
We have to recognise the difference between an expense and an investment;
The private sector is not the panacea for all economic challenges; and
The state has to become a player in the economy, not just a prefect.
When cash is scarce, when the fiscal space is tight, the temptation is to spend ever less, to hold back, on everything. Simply applied, that won’t help. We can cut back on consumption, but we have to invest to grow, no debate.
Not every rand we spend is the same — some of them will generate returns, build businesses, generate profits and then pay taxes. Some will create assets, like buildings and infrastructure and an educated populace. We can ill afford not to spend those.
Leaving all of the difficult stuff to the private sector is not the solution. It may generate superior returns, but that’s not the entire agenda.
The private sector will not solve unsecured lending. The private sector has not solved primary education, and it won’t solve tertiary education. The private sector has not solved security. The private sector will not solve healthcare.
Not alone, and not, as Finance Minister Pravin Gordhan said repeatedly in the medium-term budget, if no one should be left behind (in our march to a better life for all).
The private sector solutions to education, healthcare, personal security and banking the unbanked have, if anything, further entrenched inequality among our people. The private sector’s primary purpose is not to address socioeconomic imperatives.
Of course the solution is not an either-or situation, it’s more like a sum of the parts. Elements of design will necessarily include an infusion of private sector expertise and experience into state enterprises on the one hand, and an enabling regulatory environment on the other.
No one will win, and many will get left behind, if we don’t have the grace and lack of arrogance (on both sides) that will draw us together towards the common sense of public-private partnerships, towards a functional accord between government, business and labour. The state’s role is vital, all the more so in a divided society.
How, for instance, will we tackle the problem of unsecured lending? It starts with a low enough cost of capital. The state’s cost of capital (issues in the bond market) has to be among the lowest. It is that input cost that will, in turn, allow reasonably priced funding to be made available to small, medium and micro enterprises and individuals not yet included in the formal sector.
The reward doesn’t come (nor should it be sought) only in the (now affordable) net margin embedded in the performing loans. The reward (to the state) comes through the creation of profitable businesses that will one day pay taxes.
This reward will only come when the formal economy can present a compelling invitation to those outside of it, in the faster-growing informal sector, to join in.
If the state wants appropriate loan structures for the poor, appropriate life assurance for the masses, and protection from unscrupulous debit orders, let alone savings and investment products, it had better get involved, intimately, all the way through to the ultimate delivery.
Dare I say it, I know just the distribution network where this can be designed and delivered!
If the government thinks these challenges are not its problem, evidence suggests otherwise. Once all the easy, risk-adjusted returns have been extracted by clever, singlepurpose-motivated capital, the mess of failed economic equations (which were never going to work in the first place) will land squarely back in the government’s lap.
Let us all take a step towards the middle, to that place of common cause that has eluded us for too long, and let’s find solutions that don’t divide, that don’t discriminate, that don’t exclude, that invite. If we don’t, we’ll leave so many behind, it’ll be them that define us.
Reward will come when the formal economy can present an invitation to those outside