1 August 2012

South Africa: The DA's Economic Plan - the Shift From Socialising the Economy to Liberalising It

Photo: Werner Beukes/Sapa
File photo: A police officer tries to control a tense situation between an angry crowd and Democratic Alliance supporters.

opinion

The Democratic Alliance (DA) released its "Working for Change, Working for Jobs" economic plan for South Africa a week ago.

Where the ANC's economic plan lacks a united front and coherence - as demonstrated in a recent ANC policy conference - the DA hopes to capture the public imagination with its own image for the future and by taking the gap created by a faltering ANC.

Where the ANC is mesmerised by the virtues of the state, the DA is mesmerised by the virtues of the private sector. Yet both miss the point: Economic policy should be tailored to a changing national and global context rather than be based on a set of beliefs and perennial economic truths.

Economic theory is not a religion and the Chinese model (which the DA grudgingly praises) was built on experimentation where the Chinese found their way through the chaos of life as opposed to accepting theory at face value.

Designing a plan to have a particular ideological look and feel will not necessarily lead to unleashing pent-up and frustrated economic agency.

Part of the problem is that the DA's document assumes that, like religion, there must be strict separation of state and the church, so it must also be between state and economy.

Our own history though has demonstrated the close proximity between political power and the nature of economic institutions. They have largely served an exclusive extractive model against the welfare of the general populace.

In South Africa, economic power is defined by patterns of ownership, political access, the monopoly over human capital and skills and control over the flow of capital. Those who control this, determine the architecture of the economy.

What we have is a de facto situation of inherited economic power from an old extractive system with new political masters seeking to align, at least rhetorically, its economic benefits to a wider constituency.

The intent is right but the project has failed because the alignment has been turned into an exclusionary project, which is gnawing at itself. The effect of which is that political power has lost its moorings and the centre of power itself is a source of competition for resources and access. The project of the inclusive economy has been lost in the process.

So what is the DA planning for us?

The DA posits that by reforming economic policy and the rules of the game it can achieve growth rates of 8%. This 8% will be achieved by giving primacy to private sector driven development and reducing the participation of the state.

Ironically, the document points to Asian successes as examples but fails to see that, if anything, strong state intervention and strategies of capital accumulation with a state-centric and aligned private sector was the route of the Asian success. Large state and private firms were key, so was a plethora of small and medium enterprises in rural and urban areas.

Growth in Asia was stage-managed: primary (agriculture) and low wage industrial sectors provided the capital base in which aggressive growth was followed by systemic structural shifts. These shifts involved diversification of their economies and with concomitant improvements in health, education and wages.

And, unlike the DA's recipe for liberalising exchange and capital controls, they did the opposite. They took a more measured and tactical view on this driven largely by changing global circumstances and context rather than ideology.

Exchange and capital controls are strategic policy choices: it's about ensuring long-term capital circulation within the national economy as opposed to preference for short-termism, leakage and danger of capital flight. It also determines the type of foreign direct investment one attracts whether it is purely market seeking or profit seeking.

Just because the ANC sits with a messy state bureaucracy that varies from competent to incompetent doesn't mean that one should write-off the importance of the state. The ANC's failures should not drive the conclusion that the form of institutional delivery - this being the state - is inherently flawed.

There are simply certain public goods and services that the private sector cannot and should not deliver because it is not best placed to undertake them. Essential services, especially for the poor, should be the domain of state function.

Private delivery mechanisms tend to come up against their own internal tensions. This being the penchant for high rates of return on capital from restless shareholders, the stickiness of being dragged into long-term commitments to deliver a public service and the problem of profiteering in services and goods that are a natural monopoly.

This is a hard lesson Britain is learning following the uncovering of unsavoury profiteering that has gone on with private finance initiatives for their national health services.

While the DA's document rails against some anti-competitive "big business" and "big unions", its real beef, of course, is with big unions.

This comes as no surprise as the preface notes that one of the panellists on the DA's advisory panel is none other than labour broking firm, ADCORP's labour market analyst, Loane Sharpe, who has come under attack from the unions for his public defence of doing away with minimum wages and his support for labour brokering, which the DA seems to applaud as a strategy not only to supply unencumbered temporary labour but also to break the back of unions.

The DA's trick for 8% growth is a combination of state fiscal austerity and regulatory liberalisation ranging from labour laws to wage bargaining and so on. The primary aim in all the key proposals identified for reform, in the latter part of the document, is really about lowering the transaction costs of doing business. In some cases it may hold merit and in others it may wittingly and unwittingly lead to third party costs - the big players yet again winning at the expense of others.

So what is missing from "Working for Change, Working for Jobs"? There are several things and here are the key issues:

Firstly, a redistribution model that doesn't just rely on the good fortunes of growth or private sector benevolence but is far more astute about the potential for rent seeking in both market and state, making it important for state intervention to be tailored to address abuses.

Secondly, a clear relationship between macro and micro-economic policy to ensure a managed approach to structural shifts based on our intrinsic endowments, needs to be clarified.

Thirdly, dealing with the financialisation of the South African economy (which the document hardly mentions) versus building a real economy where income is hard won rather than accumulated through rents from unearned income.

Fourthly, linking skills imports and investment flow to targeted sectors that enable structural shifts and ensure a more dynamic economy.

And finally, the document lacks sector specific growth and development strategies - it says little about mining, agriculture, the services sector, industrial exports and so on.

Let's hope that in chastising the ANC for 'turning companies into organs of government, the DA does not do the reverse: turning government and citizens' rights into organs of private companies and the market.

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