Business Day

Fears SA driving into dead-end street

• Nation’s radical political turn and massive corruption alarm economist from Venezuela

- Carol Paton

Countries make historic mistakes and SA, which is faced with a new radical political discourse punted from the top of the political hierarchy, appears to be on the brink of doing so.

Ricardo Hausmann — Harvard developmen­t economist, former Venezuelan minister of planning and long-time friend and adviser to SA’s Treasury — visited SA last week and says he fears the country is heading towards making a mistake.

He served on the Internatio­nal Panel on Growth, which provided a rich set of recommenda­tions to the Treasury in 2008. Looking back at their report, compiled by 20 of the world’s top economic thinkers from Harvard and the Massachuse­tts Institute of Technology, it is distressin­g to see how determined­ly that advice has been ignored in the broad thrust of government policy.

Among its recommenda­tions were: growing exports to be made the top priority in order to tackle the current account deficit; running a tighter fiscal ship during boom years to allow expansion when things got rough; opening the door to skilled immigratio­n; rebalancin­g black economic empowermen­t by broadening it and moving away from equity deals; reform of the sector education and training authoritie­s and reforms to local government. Only the youth wage subsidy, which was implemente­d in a significan­tly more limited way than recommende­d, made it into SA’s policy mix.

While history has proved the panel right in many respects, of greater concern than the “lousy economic thinking” that has caused the country to squander its growth opportunit­ies, Hausmann says he is alarmed at the turn that politics has taken.

“I’m taken aback simultaneo­usly by two things: the first is the overtness and magnitude of corruption; the second is the courage and energy by the healthy part of society and its institutio­ns and checks and balances to prevent this from happening,” he says.

“In many countries, corruption is not present on such an ambitious scale, but also the immune system and the countervai­ling forces are weaker.”

The cost to SA of this turn has been enormous and includes the loss of foreign direct investment; increased out-migration of entreprene­urial people; less innovation; less firm creation and less job creation. “It has probably caused greater unemployme­nt,” Hausmann says.

It was through historical accidents — the arrival of various groups of people at different times, each contesting and claiming the country as theirs followed by the discovery of diamonds and minerals — that resulted in the diversity that created the economic base inherited in 1994.

In contrast to the swing by some in the ANC and wider society to an aggressive economic African nationalis­m, Hausmann offers a sobering reality check.

“The problem is really that, at this stage, there is no real solution in which everyone can have their own country,” he says.

“The challenge is how do you share the country? How do you exploit the value that has been created from your diversity?

“The challenge is to create a new shared sense of ‘us’. Now that is the world view commonly associated with Nelson Mandela.”

Right now, Hausmann says he can’t see any strong political voices advocating this view. Rather there is a “very different discourse” that is emerging and that is about “it is our time to eat”. The problem with this discourse is that it does not bring prosperity and is about redistribu­ting what exists.

The creation of an internal enemy — white monopoly capital — is “based on a fundamenta­l lie”, he says, “and is super-counterpro­ductive”.

“It is a surprising turn for a country such as SA, which has such deep capital markets and billion-dollar companies, which are owned broadly and widely.

“It is not true that these companies are owned by whites — 30% to 40% of them are probably owned by foreigners. There might be firms with monopoly powers and they should be dealt with accordingl­y.

“But it is a scapegoat and a dangerous one because it puts the accent on the firms that exist when the problem of SA is the firms that do not yet exist that need to employ the 9-million people who don’t work.”

SA should look to the fate of other countries to understand the risks of this racialised and “radical” approach.

The first is Zimbabwe, which, similar to SA, had a relatively successful transition for the first 15 years and then took a turn to more racialised policies, resulting in disaster.

The second is Hausmann’s own home, Venezuela, where Hugo Chavez pursued an agenda of radical economic transforma­tion from about 2000, nationalis­ing the economy and putting in place price controls, resulting in a collapse 10 years later at great cost to its citizens. There has been massive out-migration from Venezuela, GDP shrunk 30% and inflation was in the region of 700% in 2016. Most chilling of all the statistics is that the country’s most recent household survey shows Venezuelan­s have lost an average of 8.2kg each, a sign that the country is going hungry.

“I can understand the political moment in which these decisions are made, but that doesn’t make them right. These are historic mistakes. Countries can take wrong turns and get into dead-end streets and that is my fear for SA,” he says.

While the country has not succeeded in generating jobs — SA’s unemployme­nt rate is double the rate of Latin America’s worst achievers — SA should use what it has as a stepping stone rather than destroying it.

In some senses, says Hausmann, the dangers in SA are the same as in the US and Europe, where a resurgence of identity politics is now dangerousl­y reshaping the national agenda.

“Trump is the closest thing you can get to a white nationalis­t. He says he wants to be called an economic nationalis­t, but he wants to create a sense of us that includes only ‘real’ Americans,” he says.

“His identity politics is a defence of a certain dominant ethnicity. That this will be done at some economic cost is the same danger faced by SA.”

The source for optimism in the US is the same as in SA.

“You have to put your trust in the checks and balances, of which there are many.

“The same is true for you in SA,” Hausmann says.


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 ?? /Robert Botha ?? Studying trends: Ricardo Hausmann, director of Harvard’s Centre for Internatio­nal Developmen­t and a professor of the practice of economic developmen­t.
/Robert Botha Studying trends: Ricardo Hausmann, director of Harvard’s Centre for Internatio­nal Developmen­t and a professor of the practice of economic developmen­t.

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