SA’s lesson from the US

PUBLIC POLICY: MUST BE NIMBLE TO REACT TO ECONOMIC UNCERTAINTIES, EXTERNAL CHANGES

Mamokgethi Molopyane

’ve just returned from a five-state visit to the US on a programme that emphasised international economic cooperation in the context of the growth and integration of emerging markets into the world economy.

It included reviewing US efforts to strengthen its economy by stimulating growth and employment, reforming financial institutions, and the way in which some cities are diversifying from being driven by a single sector since the 2009 financial crisis.

This had me contemplating SA’s current situation. The month spent engaging on economic policies from a federal, state and city level has led me to believe there are big and important lessons for South Africa.

I often ask those leading our government’s policy development if the politicians they’re advising pay attention, and the answer is almost always a chuckle.

Today, writing about lessons SA could pick up from the US can be seen as irrelevant – more so in the face of the recent 10th Brics summit. There is no arguing that China will in the foreseeable future become the world’s biggest economy. As such, our close relation to it through Brics may yield some favourable crops for South Africa.

But it would be irresponsible to not learn from what I observed about the US public policies towards rebuilding the economy after the financial crisis in states such as Michigan and Nevada.

The main lesson the SA government should be learning can be found in the contrast between Detroit and Las Vegas.

The decline of Detroit in Michigan illustrates how dependence on a single sector in a period of rapid globalisation will produce long-term economic weakness in the form of collapse and job losses. In the face of a weakening economy and advancing technology, one simply cannot afford to have all one’s eggs in one basket.

Only Ford and General Motors are left in Detroit – and the latter, like many manufacturers, has adopted automation, resulting in fewer human workers in its plants.

As jobs disappeared in the automobile industry and that city’s economy ground to a halt, people left Detroit. Its population went from over 1.2 million to 690 000 in less than three years. There are abandoned and derelict buildings all over.

In 2013, the city filed for bankruptcy – poor political decisions and corruption of officials being the main catalysts. The economic and political crises have resulted in persistently high unemployment, rising crime and a weak education system.

Despite efforts to revive Detroit, including using tax cuts and other incentives to lure companies back, business has remained unconvinced by public policy.

The lesson is that it takes both business and government to make an economy work in good as well as bad times. To government, the lesson is that without clear business-friendly policy, there will be no real incentive to create jobs.

In Las Vegas, by contrast, after experiencing the impact of the 2009 crisis, government immediately came up with strategies to diversify its economy, moving away from its dependency on gambling, tourism and hospitality to attracting and courting tech start-ups and already established tech companies.

The American lesson for SA should be obvious by now: states and cities are not waiting for consensus or delaying work.

Las Vegas public policy enabled the city to adapt to external changes and transform its long-term economic prospects positively. That is a lesson for South Africa.