16 August 2017

South Africa: Hard Bargaining, Not Another Magic Plan, Will Get the Economy Growing


Johannesburg — Finance ministers in today's South Africa should be judged not by whether they have plans to rescue the economy themselves, but by their plans to get others to help them to do it.

South Africa's new finance minister Malusi Gigaba recently unveiled a 14-point plan to revive the economy. He did this as part of his campaign to restore trust in the economy, partly damaged by the cabinet reshuffle in which he replaced a minister respected in the market place.

The plan has not achieved the desired effect - credit ratings agencies and commentators have rejected it, labelling it a restatement of existing government commitments which will do little or nothing to grow the economy.

On one level, the complaint is accurate. Gigaba's plan, like the governing African National Congress's economic discussion document, fails to move out of the rut which currently hobbles the economy. It, too, assumes that the solution lies in doing what is currently being done better rather than in doing things differently.

In particular it has nothing to say about how to include millions who are shut out of the mainstream economy. It's difficult to see how South Africa's economy can achieve sustained growth until and unless this problem is addressed.

On another level, the complaint that Gigaba did not come up with a plan which will rescue the economy misses the point - that, given the balance of power in South Africa, no government plan could rescue the economy on its own. Government promises to revive the economy should be judged not on whether they tell the country that the government - on its own - has come up with a cure, but on whether it has a credible plan for ensuring that all the key economic actors play a role in negotiating change.

Bargaining is the key

Those who expect the government to solve the economic problems on its own believe, of course, that government created them on its own. In this view, South Africa's economy worked well until politicians came along and damaged it. All that's needed is for politicians to behave differently and the economy will again function as it should.

But growth levels are too low to offer a better life to all, and other obstacles which ensure that South Africans do not all enjoy rising living standards, didn't emerge when the current president took office or even in 1994, when the governing party took over the reins. To take one example: unemployment began rising in the 1970s, a quarter century before apartheid ended. The economy has always excluded most people - what we see now continues patterns set decades ago.

The government obviously does have a role in addressing these problems. But it's not the only source of the problem and so it cannot be the only source of a solution. Some of what business or labour or the professions or educational institutions do is also responsible for the problem. And so they all need to become part of a solution by changing some of what they do.

While this picture of all the parties coming together to work out solutions sounds attractive, getting them to the table is difficult. And finding solutions will be even harder because they are deeply divided on what the problems are, and so on what the solutions may be.

Any particular idea for change will force one or other party to give up something in order to reap dividends later. Naturally, they all think that the others should do the sacrificing.

So a process which placed the economy on a sustainable path would require some hard bargaining and would need to continue for quite some time. It's this bargaining process, not a magical government formula, which will place the economy on a new growth path.

Rebuilding trust

The government clearly has a key role in triggering the process of bargaining. This is precisely what the National Treasury seemed to be doing under Gigaba's predecessor, Pravin Gordhan.

Its attempts to stave off a downgrade by ratings agencies began an exchange between government, sections of business and labour which may have developed into a negotiation about change. The chief priority for Gigaba - or any other finance minister - is to revive the process which ended when the cabinet reshuffle destroyed the trust which made it possible.

Gigaba's plan does contain two points which might begin the revival. One is a commitment to a financial sector summit, the other a promise to resume talks on a mining charter.

Both may well fall short of what is needed. The summit idea repeats a flaw in government thinking on bargaining with business which has been evident for decades. It assumes that deep -rooted problems can be solved, and deep divisions healed, by a grand summit which gets the parties into a conference venue for a few days to hammer out a joint declaration.

This has been tried repeatedly and, each time, the declarations sounded good but were ignored. This is hardly surprising: precisely because the divisions are deep, they cannot be bridged at one event. Change is likely to need a process - not a summit. This should take as long as needed and concentrate on reaching agreement on what can be agreed, and building from there.

It is possible, however, that both initiatives could be the start of a productive process in which parties will be willing to negotiate changes which entail giving something up provided they get something in return. This is far more likely if this process too is not left to government alone.

Gigaba's plans for negotiation may be improved, and so may move the economy towards growth which includes many more people. But only if commentators and interest groups treat them with the same seriousness they now reserve their hopes for a magic government plan to save the economy.

Disclosure statement

Steven Friedman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

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