Audaciously, says this writer, what Finance Minister Tito Mboweni calls the “new economic recovery strategic plan” seeks to achieve the opposite: retrench state workers, reduce government spending overall, privatise SOEs and raise taxes. Photo: Sumaya Hisham/Reuters
Audaciously, says this writer, what Finance Minister Tito Mboweni calls the “new economic recovery strategic plan” seeks to achieve the opposite: retrench state workers, reduce government spending overall, privatise SOEs and raise taxes. Photo: Sumaya Hisham/Reuters

Out of The Box: Jobs, economic growth dream fading?

By Siyabonga Hadebe Time of article published Feb 26, 2020

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PRETORIA – One big gift that South Africa can give itself is doing things out of the conventional to create a new economy, even if it means upsetting the highly favoured international investors.

The reality is that for many years now, all efforts aimed at growing the economy haven't worked and unemployment remains stubbornly high. 

The International Labour Organisation’s ILO-Stat database in 2019 puts South Africa's unemployment rate in the same category as that of the troubled West Bank and Gaza (29.9 percent). Now at 29.1 percent as per the latest indicators, this means that the number of unemployed people in South Africa is higher than that of the Democratic Republic of Congo (4.3 percent), Libya (17.3 percent, Syria (8.2 percent), Zimbabwe (4.9 percent) and Afghanistan (1.5 percent). Of course, these figures are nonsensical to say the least. 

Admittedly, South Africa has its own challenges, but over the past 25 years the government has increased the number of people with access to social security and other basic services, like water, electricity and housing. 

In addition, the National Development Plan sets ambitious targets for various socio-economic indicators, including the economy and employment, that must be achieved in less than ten years from now. Yet, when one zooms at unemployment alone it appears all the effort has gone to waste.

Nonetheless, it is important to emphasise that both the economy and unemployment are not moving in the desired direction. It looks like the down spiral will not stop any time soon. At the rate things are going, unemployment will exceed 60 percent percent and the economy will not exist. 

There comes a time when estimates for both these indicators will not be of any interest to anyone. The biggest concern though is that there appears to be no serious thought invested in turning around the present situation. Market-driven effort has been a huge disappointment.

Obsession with right-wing economic interventions such as cutting government spending, labour reform and privatisation could be a bigger problem than the problems the country faces at the moment.

Structurally, South Africa appears not to be doing itself justice with its "two economies" structural make-up. The reality is that the gross domestic product (GDP) figures, for example, are mostly based on the economic activity in the formal economy. 

A large part of the economy in townships and rural areas is not included in the basket of goods. Reluctance to incorporate the "informal economy" and rural areas to the broader economy is not helping at all. That could be the first problem. 

Another problem is that unlike the GDP, which tends to focus on the formal economy, unemployment appears to include both Sandton and rural South Africa. 

The assumption of statisticians and economists is that there is no economy in rural areas. So, not so much effort is put into understanding what exactly is driving the country's expansive rural settlement besides remittances and social grants. 

Nonetheless, indices for economic activity – in the form the GDP and employment – tend to focus on the previously whites-only areas and their contribution to a section of the economy. Perhaps these figures would look slightly different than how they are presented had they been more inclusive and less politicised. 

With all said, the unemployment problem exists in South Africa and therefore requires undivided attention from everyone.

Besides the private sector's reluctance to invest in the South African economy, an argument is thus put forward that the government has generally been lost at sea in terms of seeking genuine solutions to the problem of joblessness. 

It has also shown reluctance in using all the tools at its disposal, be they economic or otherwise, to bring down unemployment. These include monetary and fiscal policies, public procurement and large-scale public works programmes (PWPs). PWPs at present form could be a waste of time for everybody; another approach is, therefore, more than necessary.

One of the arguments that is often disregarded in the ongoing debate on the nationalisation of the SA Reserve Bank concerns what the US Federal Reserve Bank has done well in the past: using central banking instruments to stimulate the economy. The US has faced two serious economic meltdowns in the past: the Great Depression in the 1930s and the Great Recession in 2008. In both instances, the state jumped in and rescued the economy by using its institutions, legal frameworks and instruments.

The same approach appears lacking in South Africa, whose unemployment and low growth will persist well into the future.

What the government announced in 2018 as an economic stimulus is a pittance when contrasted with the US interventions, both in terms of resources and effort. 

The present situation therefore presents a lifetime opportunity not only to reinvigorate the economy but also to introduce overall, drastic structural changes of the economy.

But this requires a change in mindset by dumping neo-liberal thinking and adopting an intensely statist approach. If the US and other economies could successfully intervene in the economy, what stops South Africa from doing the same? This is not just about money but all the capabilities the country has, from policy framework to the state machinery.

In the past two years there has been talk about a “new deal” plan to revive the ailing South African economy, but this was more like water vapour. A case is therefore made for South Africa to learn from the US experiences in the 1930s and late 2000s.

When the US economy collapsed around 1930, President Franklin D Roosevelt introduced the “New Deal”, which dramatically expanded the federal government's role in the economy in response to the Great Depression. These actions were designed “to bring about immediate economic relief as well as reforms in industry, agriculture, finance, water power, labour, and housing, vastly increasing the scope of the federal government's activities”.

To this day, the New Deal remains one of the biggest economic plans by a government, not even the Marshall Plan in Europe after WWII comes close. In fact, without a revived US economy the Marshall Plan wouldn't have existed.

Nevertheless, the New Deal basically promoted “the concept of a government-regulated economy aimed at achieving a balance between conflicting economic interests.” From March to June 1933, the US government enacted legislation that aimed at addressing the banking crisis, unemployment and weak industrial performance, among other problems.

In what was called an “alphabet soup”, many laws and institutions were born, including the Agricultural Adjustment Act (subsidies to farmers), Federal Emergency Relief Act (relief to state employees), Securities and Exchange Commission (oversight and regulation to the stock market), and National Recovery Act (wage-setting and collective bargaining).

The US-based Khan Academy argues that the New Deal was based on the Keynesian economic school of thought. Keynesianism states that “government spending that put money in consumers’ hands would allow them to buy products made in the private sector.” 

Even more so, this approach allows the government direct involvement in the economy to shape many outcomes, including employment, social security and housing, among others. It was not until the 1980s under Ronald Reagan that many of the gains from the New Deal were reversed. 

As a result of “Reagonomics”, the US has poor regulation of wages, working hours, collective bargaining rights and social security system.

When the economic crisis struck once more in the late 2000s, the US Federal Reserve was available to again provide relief to the American economy. In February 2009, the US Congress signed the American Recovery and Reinvestment Act of 2009, which was a stimulus package to respond to the financial crisis. 

According to the estimates of the Congressional Budget Office , the government spent about $831 billion (R12.56 trillion) between 2009 and 2019. 

What is regrettable though is that the developed nations and global financial institutions tend to treat South Africa different in as far as it tries to resolve its present economic problems. When the likes of the European Central Bank and the Bank of Japan bought stock in large struggling corporations, this move was applauded. 

In the case of South Africa, state-owned enterprises (SOEs) have a broader role in society, so it makes sense to do all that is possible to save them. As recent as January 2019, the International Monetary Fund said South Africa’s economic growth was being weakened by bailouts without offering alternatives. 

Again, the rationale behind the recent stimulus package in the US was based on the Keynesian economic theory which states that at times of recessions the government “should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration”.

Audaciously, what Finance Minister Tito Mboweni calls the "new economic recovery strategic plan" seeks to achieve the opposite: retrench state workers, reduce government spending overall, privatise SOEs and raise taxes.

As the saying goes: “Holy Moley!” 

Raymond Moley was one of US President Franklin Roosevelt’s most heeded advisers, who coined the term “New Deal”. 

The New York Times explains that Moley later turned his back on the progressive policies due to “a too-radical" trend the New Deal was taking. Left-leaning politicians like Mboweni and scholars are simply too afraid to lead the way and now, like Moley, they are conservative and timid. 

In all fairness, no plan will ever turn around the economy within the present institutional and legislative frameworks. South Africa suffers from bureaucratic collectivism – it is administration to no end and is without fresh ideas. 

The stale ideas and sight of conservative economists close to the National Treasury can only spell disaster of highest proportions. A developmental paradigm is needed to support a developmental state, not just in words but in deeds. 

The present laissez-faire approach which assumes that markets will grow the economy and create jobs is more like a raw deal for citizens who expect change in the structure of the economy. 

Government intervention in the economy can be a mix of simple solutions and complex ones.

Siya yi banga le economy.

Based in Pretoria, Siyabonga Hadebe is an independent commentator on socio-economics, politics and global matters.

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