SA needs economic reforms fast
As an economic model the NDP is a disaster
BEFORE the financial crisis, the South African economy grew at 5% a year, and averaged 4% since 1994. Credited with a political miracle in 1994, an economic miracle was in sight.
The economy was touted as a paragon of macroeconomic prudence, and the hope was that growth in GDP would benefit all citizens by way of reductions in unemployment, poverty and inequality.
But who benefited from this growth? A closer look revealed that the financial services sector grew at about 8% while the rest of the economy ambled along at an average rate of about 3%.
The sector outpaced manufacturing to be the largest contributor to GDP. Growth was entirely jobless. As GDP surged over 5% after 2004, South Africa eclipsed Brazil as the most unequal economy on earth.
Five years into the crisis, the economy remains fickle and of little promise. South Africa has learnt nothing. We are told that what ails the economy is its labour protection laws. We are told that there is no lack of analysis, but the will to act.
Two decades into democracy the outcomes of our economic system and its policy framework are unambiguous: increased poverty, inequality, unemployment, escalating costs of living and doing business.
How else does one measure the success of any economic model if not on its ability to increase the wellbeing of most of its citizens? If it does not, why should people labour under such a system — even when there is impressive economic growth?
Attributing such outcomes to labour laws, policy uncertainty and infrastructure constraints smacks of intellectual poverty, political naivety and leadership vacuity.
To make matters worse, we have drawn up a 20-year National Development Plan that evangelises growth. We all pray we will be able to turn things around by following the same failed economic policies. The nation appears to have been shackled to this faith-based ideological hubris.
This economic model is a disaster and will yield negative outcomes, even if we were to grow beyond 5%.
With social ferment across the nation, the economic model has become a serious national security risk. How can the nation allow its key policies to be defined by foreign institutions and governments and their domestic cheerleaders whose interests are at variance from the nation’s?
Labour laws, we are told almost daily, are the biggest culprit that retard growth, discourage employment and reduce competitiveness. Yet there is no evidence that supports this view.
As recently as 2012, the Organisation for Economic Co-operation and Development concluded that employment protection laws have no significant effect. Of the 40 countries surveyed, South Africa ranked at number five with one of the weakest labour protection laws after the US, Canada, UK and New Zealand.
Germany ranked more than 20 places behind South Africa. This is empirical evidence, not policy smoke and mirrors.
Hiding behind the shibboleth “structural reforms” to force nations to accept their oft-disastrous policy prescriptions (such as for labour), Western institutions promote what Nobel economist Professor Joe Stiglitz calls “market fundamentalism”.
Even Dominique Strauss-Kahn, former head of the International Monetary Fund, remarked that the universal applicability of policy prescriptions by these institutions have been put to bed by the crisis.
He further observed that the crisis had “devastated the intellectual foundations of their global economic order.” Indeed, they are so intellectually paralysed that they cannot even formally suggest a reversal of their failed systems, let alone forge a post-crisis economic order that eliminates developmental challenges.
Instead, they continually recycle unsound “structural-reform” pre- scriptions which are a code for removing worker protection rights and stagnating or reducing wages.
South Africa needs economic reforms now, and perhaps structural reforms later. Confronted with these outcomes caused by our failed poli-
We need urgent monetary and fiscal re-orientation, not tax reforms
cies, how do we forge our way out of this quagmire? There cannot be a more fitting time than now.
The first point of call is the financial system. Reforming our monetary and banking system is vital. The current system is not only inherently anti-developmental, it is incompatible with and permanently at tension with the need for sustained industrial and social development. It is further inconsistent with the need to create a viable, progressive and more egalitarian society that can underwrite social stability.
Second, our macroeconomic policy framework is a relic of the defunct gold standard. It is a flat-currency world today. This conceptual failure is the primary impediment to full employment and equity.
Wynne Godley, a leading British economist, said in 1992: “The power to issue its own money, to make drafts on its own central bank is the main thing that defines national independence. If a country gives up or loses this power, it acquires the status of a local authority or a colony.”
We need urgent monetary and fiscal reorientation, not tax reforms.
Full employment must be the central goal of policy, not growth. Growth has yielded unemployment. In fact, growth in South Africa is growth in economic rent and in private and sovereign indebtedness.
We should review the manner in which we embrace and manage glob- alisation. Poor management of globalisation can rout or build an economy. For example, pragmatic leadership in Malaysia defied the IMF and successfully imposed capital controls during the Asian crisis. Malaysia triumphed and the IMF later U-turned and supported Malaysia.
As a nation, we cannot wait for calamitous events or sufficiently threatening events to produce consensus on the need for deep policy changes.
Aren’t the events there on the horizons anyway? An urgent call to action is made here. An economic imbizo should be convened urgently.
As one Barack Hussein Obama aptly put it: “We cannot rebuild this economy on the same pile of sand.”
Indeed, unless there are fundamental reforms of our economic model, the “hope for a better life for all” will be an indefinitely deferred hope. Revolution could follow.
Nkosi is the founder of Firstsource Money and is an executive director at Firstsource Holdings