New year needs new urgency to fix crisis
In January we look ahead to the new year, but it’s tempting to ask to turn back the clock to, say, 2011. Yes, we thought things were tough at the time. But since then we’ve had crashing commodity prices, slowing global growth and the promise of sharper fiscal consolidation to drag down economic growth at home even more.
For SA, the result of all of this was a steady slowdown in growth and job creation. If we plot GDP and employment together on a graph, a common trajectory emerges: solid growth during the commodity boom, with sustained expansion at more than 4% a year from 2002 to 2008 for the first time since the early 1970s; a sharp fall during the global financial crisis in 2008-09; an equally sharp recovery to 2011; and then gradually slowing growth that neared zero in 2016.
In 2011, the economy and jobs expanded by more than 3%. In the year to the third quarter of 2016, they grew by less than half a percentage point. This year doesn’t look much brighter. Yes, there could be miracles: a Trump boom in the US (dream on); an unexpected recovery in China; an out-of-body experience in Europe. Otherwise, we’re likely to see the same slog. And it could be worse, especially if Donald Trump lives up to his erratic threats.
And then there are the domestic political issues. It’s hard to determine if governance in SA has actually worsened or just run into a less forgiving global economy. Hard economic times shine a spotlight on poorly thought-out and disjointed policies and corruption.
After all, the other commodity producers in Brics — Russia and Brazil — have undergone actual recessions, with their economies shrinking by more than 3%, as well as even more disruptive political conflict.
Either way, there is no question that the government has been slow to respond to the crisis. In part, that is because this downturn has been less obvious than the 2008-09 crash — more a slow slide into stagnation than the shock of plummeting markets.
But the fact that growth has slowed only gradually doesn’t lessen the urgency of some kind of short-term stimulus. So here’s a wish list for 2017.
First, the government recognises there’s a real crisis that can’t be fixed by holding steady to the long-run incremental improvements promised by its nine-point plan. And it responds by working intensively with stakeholders to find innovative ways to stimulate growth and address the persistent backlog in employment. The ability to deal with crises in conjunction with organised business and labour has been a key strength for SA since 1994.
The need to act cuts both ways. The government will only be more responsive if stakeholders mobilise around politically and economically viable solutions.
Second on my wish list is that the government goes strongly for short-term interventions that boost growth without aggravating unemployment and inequality.
That’s easy to say. But it’s hard to agree on which initiatives make sense, since unusually deep inequality in itself leads to sharply divergent interests between a small economic elite and the majority of voters.
Still, some things are obvious. Above all, we need to stimulate domestic and regional demand to offset slower growth without piling on unsustainable government debt. For instance, stronger emphasis on local procurement by the public and private sectors would reduce import leakages. Mobilising off-budget resources would help too. In particular, the Unemployment Insurance Fund has more than R100bn in reserves, which now function (inappropriately) as a forced savings scheme for workers and employers.
Third, 2017 should be the year when the government and business finally address the shortcomings in the 1994 compromise, which expected improved government services and an end to racist laws to bring about a more equitable and cohesive society. Twenty years later, it is clear the deal didn’t deliver for many South Africans.
The result of this failure is a growing tension between political democracy and an economy that channels the benefits to a still tiny, although increasingly black, minority.
Today, nearly half the richest 10% of South Africans are African, but that doesn’t mean much to the rest of the population, which collectively gets less than half of household income and owns under 5% of all household assets. Asking voters to be patient doesn’t work forever.
If 2017 doesn’t see stronger measures to address the slowdown and economic inequality, populists from the left and right will be happy to offer magical solutions. In 2016, we saw how that can play out even in much more cohesive democracies. And it could make us really nostalgic for 2011.
THE GOVERNMENT WILL ONLY BE MORE RESPONSIVE IF STAKEHOLDERS MOBILISE AROUND POLITICALLY AND ECONOMICALLY VIABLE SOLUTIONS