Political Economy

The economy, more than the election, holds the key to SA’s future

Pravin Gordhan

South Africa’s sustainable prospects as a socially stable and vibrant democracy depends far more on what will happen on the economic front than on tomorrow’s election results.

In fact, the final outcome in the countrywide municipal elections will to a large extent probably be more the reflection of what is happening and has been happening, or not happening, on the economic front than anything else.

Yes, it will also to some extent pass judgement on the leadership of President Jacob Zuma, but it will largely be a reflection of to what extent ‘liberation’ more than two decades ago, has lived up to the quality-of-life expectations of the majority of the population.

It will also give a clear indication of whether the majority still thinks there is reasonable hope that the ruling ANC, or any political party for that matter, can deliver in terms of their expectations. In this regard the stay-away ‘vote’ is the important one to watch.

With a growing portion of the population giving up on the system, the dangers of social instability and radicalisation of society through things like violent protest actions also increase.

Unless some dramatic changes on the economic front can be effected in the medium term, the country is running a big risk of dropping into a cycle of sociopolitical decline. At this stage the prospects do not look too good.

Broad perspective

While South Africa has made some progress over the last two decades to relieve the level of extreme poverty in the country – from 12.6 million in 2006 to 10.2 million people in 2011 – and moderate poverty from 27.1 million in 2006 to 23 million people in 2011, however, almost 63% of the population remains poor.

This improvement was achieved mainly via a redistributive tax-income regime in the form of social grants. But this approach alone is clearly not doing the full job. Not only does it have limitations, but with the country presently slipping into recession it is becoming counterproductive by restricting capacity for things like infrastructure investments, tax income is likely face challenges in the medium term.

And economic growth alone, as suggested by some commentators, lobby groups and some political parties, will not do the trick. Not only is the 7% growth rate, calculated at what is needed to bring down unemployment levels and the like, unrealistic, but the country’s biggest economic problems are of a structural nature.

In a just published analysis of the Council on Foreign Relations(CFR) it is stated that the “discrepancy between the country’s remarkable democratic evolution since the end of apartheid and the parallel but slower rate of economic and social change is a source of growing discontent, particularly in the largely black, lower-income townships. (Our emphasis.)

“Though the income and wealth gap between whites and everybody else has decreased somewhat since 1994, overall income inequality has increased.”

And on the results of this situation, it is stated: “Frustration over persistent poverty, growing income inequality, and, more generally, the slow rate of economic and social change have sparked widespread protests that have occasionally turned violent.

“This disillusionment may contribute, albeit indirectly, to the country’s high crime rates. Anger is part of the context of the August vote and makes it more difficult than in the past to predict an overwhelming ANC majority in the townships.”

It also points out that because the country has a strong democracy there are limits to government’s powers to act arbitrarily to address these structural problems, as is the case in other well established democracies.

In South Africa, with its strong constitutionally protected human rights regime, this was clearly demonstrated last week when the Land Rights Restitution Amendment Act (LRRAC) was declared invalid by the Constitutional Court.

Other state interventionist programmes, like the Broad-Based Black Economic Empowerment of government, have also failed dismally to address the inequality problem and at best only changed the racial bias of it slightly. As the CFR puts it, it “mostly benefits a small elite connected to the ANC. In all its forms, BEE has had relatively little impact on poverty in the townships or the rural areas.

“Though the income and wealth gap between whites and everybody else has decreased somewhat since 1994, overall income inequality has increased. Among blacks inequality has risen,” the CFR found. (Our emphasis.)

Time for a new approach

The CFR paper concludes, among other things, that “Whatever the outcome of August's elections, the powers of any South African government to bring about radical social change is limited by constitutional checks and balances, just as it is in the United States. Hence, the formal structures of white supremacy could be dismantled quickly, but the effects of three centuries of white supremacy pervade, as they do in the United States.”

For a year or more there have been reports about the growing inequality worldwide, with income and wealth getting ever more concentrated in hands of a smaller percentage of the global population. This results in predictions of a collapse of the present global economic and financial systems and the transition to a post-capitalist society.

Just maybe, as it did with its transition to democracy in 1994, South Africa can again be an inspiration to the rest of the word.

In an address at a business breakfast hosted by Ernst and Young in partnership with the Johannesburg Chamber of Commerce and Industry in Sandton last week, Finance Minister Pravin Gordhan gave some indications of the elements needed to achieve such a development.

These include:

  • Recognising that education is the key to economic development;
  • Concentrating on the positives of what has been achieved rather than on the negatives of what had gone wrong;
  • Government needing to address policy uncertainty, particularly in mining and land legislation;
  • Government, business and labour “getting closer” to an agreement over a national minimum wage and its implementation;
  • On the issue of labour relations, recognising there is a need for parties to find one another “sooner rather than later” where wage agreements are concerned;
  • Strengthening cooperation between labour‚ the government and the private sector to fend off the prospect of a credit rating downgrade in December this year – “things had to be done differently in the second half to retain the investment outlook of the country’s economy”; and
  • Gordhan calling on businesses to commit to the economy and invest in South Africa.

To this we can add that government needs to take a totally new approach to doing things – as was proven with the defeat of the LRRAC in the Constitutional Court.

And as we argue elsewhere, there are alternatives available, like, for instance, assisting people to take transfer of the dwellings where they are living, especially on land owned by the state, either directly or via tribal authorities.

Above all, the time for an economic ‘Codesa’ between all stakeholders is more opportune and needed than ever.

by Piet Coetzer

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