Before the financial crisis, the South African economy was growing at about 5 percent a year, and averaged about 4 percent since 1994. Credited with the political miracle of 1994, an economic miracle was in sight, or so we hoped.
Touted as a paragon of macro-economic prudence, the country was lauded by London, Washington and their influential financial institutions as vindication of the success of the International Monetary Fund (IMF) influenced and backed economic policies enshrined in the “non-negotiable” Gear (Growth, Employment and Redistribution) programme. The hope was that growth in gross domestic product (GDP) would redound to the benefit of all citizens by way of reduction in unemployment, poverty and inequality. But who benefited from this growth?
A closer look at this growth revealed that the financial services sector grew at phenomenal paces of about 8 percent while the rest of the economy ambled at an average rate of about 3 percent. The sector outpaced manufacturing to be the largest contributor to GDP. Growth was entirely jobless. Joblessness increased. As growth was surging to over 5 percent after 2004, South Africa was eclipsing Brazil as the most unequal economy. The economy was deepening its rentier character.
Of the Brics (Brazil, Russia, India, China, South Africa) economies, South Africa was the worst affected by the financial crisis. The crisis helped lay bare the structure of the economy and the pile of sand upon which it is built – a highly financialised and rentier economy. Five years into the crisis, the economy remains fickle, wobbly and of little promise. South Africa has, it appears, learnt nothing from the crisis. What we are being loudly told is that what ails the economy is largely 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, increased inequality, increased 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 provide sustainable increases in the well-being to the majority of its citizens? If it does not, as is so abundantly clear, why should a people continue to labour under such a system with such outcomes – even when there is impressive economic growth?
Attributing such dreadful outcomes to labour laws, policy uncertainty and infrastructure constraints smacks of intellectual poverty, political naivete and leadership vacuity on the part of the nation. To make matters worse, we have drawn up a 20-year National Development Plan (NDP) based on the same failed policies, backed by the same Bretton Woods institutions. We are told to pile our hopes on this plan.
The recent medium-term budget speech elevates the NDP and evangelises growth. We are all praying and wishfully thinking that miraculously we will be able to turn things around by following the same failed economic policies. It surely calls for a great deal of collective blind faith to think this way. The nation as a whole appears to have been shackled to this faith-based ideological hubris: neo-liberalism.
While political and business-dominant elites don’t see themselves as acting ideologically and react with hostility when ideological labels are pinned on them, the fact remains that this current economic model, whatever its name, is a disaster and will consistently yield negative outcomes, even if we were to grow beyond 5 percent.
It may be intellectually discomforting for those in power to accept they have failed the nation by blindly adopting this economic model. With social ferment across the nation, the current economic model has become a serious national security risk. How can the whole nation allow its key policies to be subtly dictated or defined by foreign institutions and governments and their domestic cheerleaders whose interests are at variance with the nation’s?
In regard to labour, there is no credible empirical evidence whatsoever that supports the view that labour protection laws increase unemployment, nor do minimum wage demands. This is the conclusion of a majority of studies. As recent as 2012, the Organisation for Economic Co-operation and Development (OECD) released a 223-page report on growth policies and concluded that employment protection laws have no effect of any significance at all.
The same report reveals that among the 34 OECD members and six partner countries, South Africa ranked number five, as one with the weakest labour protection laws, after the US, Canada, UK and New Zealand. Germany, the home of BMW, ranks more than 20 places behind South Africa. This is empirical evidence, not policy smoke and mirrors that appear to characterise editorials and opinion pieces in this country.
Confronted with these outcomes caused by our failed policies, how do we forge our way out of this quagmire? There cannot be a fitting time than now – even though we squandered the Mangaung conference of the 100 year old ANC.
The first point of call is the financial system. Reforming our monetary and banking system – including institutions thereof – is urgent and vital. The current system is not only inherently anti-developmental, it is highly incompatible and permanently at tension with the need for sustained industrial and social development at a mass scale. It is further inconsistent with the need to create a viable, progressive and more egalitarian society that can underwrite social stability.
Second, our macro-economic policy framework is a relic of the defunct gold standard. It’s a fiat currency world. This should have changed at independence in 1994. This conceptual failure is the primary impediment to full employment and equity. As captured by a leading British economist: “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.” (Wynne Godley, 1992). We need urgent monetary and fiscal re-orientation, not tax reforms.
Full employment must necessarily 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. Furthermore, we should review the manner in which we embrace and manage globalisation. Poor management of globalisation can singularly 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 did a U-turn 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 urgently convened.
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.
* Redge Nkosi is the founder of Firstsource Money and executive director at Firstsource Holdings.