Why we cannot grow the economy
[A version of this article was published in Daily Maverick on January 30, 2020.]
Like most South Africans, I am deeply frustrated by our decade-long economic stagnation. As the economy grows slower than the population does, GDP per capita has been shrinking for the last five years, and sky-high unemployment has become a structural feature of our society, with all its devastating immediate and far reaching consequences on individuals and families.
I’ve been reflecting on why we cannot seem to get ourselves out of this predicament.
It’s not like we are short of ideas on how we can grow the economy inclusively. The National Development Plan – despite having been largely ignored and more relevant now as an example of massive lost opportunity – pointed out many of the things we need to do, 8 years ago now. We’ve solicited proposals from the best international development economists. Various think tanks have offered useful suggestions. The IMF does an annual economic diagnostic. In Operation Phakisa, we adapted and tried the Malaysia-style lab concept to develop tangible action plans to accelerate growth in priority sectors. Government and business have had countless dialogues, roundtables and high-level working groups.
National Treasury, responsible for the unenviable task of allocating our limited resources to our many public needs, is acutely aware of the consequences of low growth: as our economy cannot generate the tax revenue required to fund the government spending we demand, we borrow, increasingly unsustainably (12 rands of every 100 spent by government goes to debt servicing.)
The only solution is growth, which is why Minister Mboweni – in sheer frustration at our seeming refusal to focus on what we need to do to reignite inclusive growth – published an economy strategy in August 2019 for public discussion. It outlined a set of growth reforms which could add just over 2 percentage points to GDP growth, and a million jobs in ten years. While not the 5-6% growth and 11 million net new jobs called for by the NDP, it is an opportunity to get moving.
The document has yet to be formally adopted by government, despite vocal support from President Ramaphosa. Then again, our government has had its hands full trying to keep the lights on.
So we basically have given up on coming up with an ambitious economic programme to rapidly develop South Africa in a generation, comparable to what the Asian tigers have achieved. We now would be lucky to agree and drive even a modest economic reform agenda.
Why can’t we agree on a set of actions to take to grow this economy?
Many of the issues have been identified: poor leadership, political dynamics in the ruling party, entrenched interests resisting changes to the status quo, among others.
A big part of the answer may be that in our society there are at least two divergent worldviews which preclude broad alignment between key roleplayers on how to grow the economy.
For the purpose of this discussion, let’s refer to the worldview of the haves, and the worldview of the have-nots.
The haves are those of us invested or employed in the small part of our economy which yields world-class wealth accumulation, incomes and living standards for a tiny few. Mostly white, with some new black members, the haves are the owners and managers of listed corporates, private companies and the established small and medium sized businesses. It is black middle-class people like myself, however precariously we cling to the economic ladder beneath the truly wealthy. It is the privileged elite who dominate our economic discourse. It is everything from Sandton to Stellenbosch, gated communities, golf estates and shopping only at Woolworths.
It is having the largest Porsche dealership in the world.
It is the top 10% that owns 95% of wealth in South Africa.
Within the haves, we ask ourselves: why can’t we get it together? Surely the politicians and labour understand that all of our problems are better solved in the context of a growing pie? An improved policy and regulatory environment, more private sector participation in areas which have been the preserve of state-owned monopolies, among other economic reforms, will mean faster growth, improved business confidence, and companies hiring more and paying more tax. Over time this will mean more employment, better wages and wealthier consumers as citizens become integrated in the mainstream economy, with savings, pensions, increasing home values and so on.
One of the simplest and most difficult things for us as human beings, is to see the world through another’s perspective. It is why countless lives have been lost to war over the millennia. It is at the root of intractable political differences between and within countries. This simple fact explains so many of the divisions and failures to communicate that we too often experience in our families, workplaces and communities.
And it is why we cannot grow.
Somewhere along my leadership journey – far later than I would like – I learned to see past my own sense of self-righteousness. The iceberg model posits that a person’s behavior, like an iceberg, is only the most visible part of a much larger mass. Our behavior and indeed our worldview, sits atop layers of thoughts and feelings, beliefs and values and needs. I would also add lived experience.
So when I find myself unable to fathom why what is obvious to me is not obvious to someone else, I fall back on this model.
The have-nots agree that we are in an economic crisis, but then their economic crisis is decades old, not a decade old. Theirs is households and families where many adults simply don’t work, either unable to find employment or having long since given up and accepted economic marginalisation. Theirs is low wages and barely making ends meet amid ever rising living costs.
They are the nearly half of our population which lives in poverty, and the 3 of every 4 South Africans for whom “poverty is a constant threat in their daily lives.” (World Bank, 2018)
The have-nots don’t see us as being in this together. They see an economy which structurally excludes them. They are excluded from the pathways to prosperity, from education, to skilled work, management positions and business ownership.
These two starkly opposed worldviews, of the haves and have-nots, underpin our economic policy contestation and play a significant role in the lack of progress.
So when business-friendly reforms are called for, the have-nots are unmoved. They see a business sector which is unfriendly and skeptical of black talent, such that the senior and top management ranks do not come close to reflecting the country’s demographics. White men continue to be assumed competent, black men and women continue to have to overachieve to receive comparable levels of trust and acceptance.
Black businesses find it difficult to thrive, squeezed between concentrated sectors dominated by a few large companies, and supply chains dominated by old (white) boys networks.
The haves think it obvious that government has shown itself incapable of managing large state-owned companies, and private sector participation should be brought in. The have-nots, while noting the dysfunctional state of many SOCs, see large companies which nurture black talent, having launched the careers of many leading black businesspeople by giving them the executive responsibilities which are so much harder to come by in the private sector. They see large companies whose value chains are more accessible because of government’s policy commitment to preferential procurement, even as we note that many black businesses would point out myriad challenges and failures in this regard.
Most economic onlookers are exasperated by the years of policy delay and uncertainty on mining policy, energy policy and telecommunications spectrum. When one looks closer, it is because the ruling party and government have found it difficult to find policy positions which accommodate and are acceptable to their constituents in black business, who continue to be on the periphery of these industries, as well as established business and foreign investors. That’s before we even deal with the concerns of workers and communities in the mining and energy sectors in particular.
Our economic stagnation is the biggest threat facing our society. We cannot meaningfully address poverty, unemployment and inequality until we both grow and transform the economy. We tend to frame this challenge in terms of political will, ethical leadership, improved policy coordination and effective implementation, all of which are critically important. What we aren’t confronting, and which is why we find it so difficult to embark on a growth trajectory, is that our economic policy discourse is caught between two very different worldviews. They must be reconciled for us to move forward.