The South African Civil Society Information Service
A nonprofit news agency promoting social justice. Seeking answers to the question: How do we make democracy work for the poor?
A nonprofit news agency promoting social justice. Seeking answers to the question: How do we make democracy work for the poor?
The recently released Framework for South Africa’s Response to the International Economic Crisis (19 February 2009), by the Presidency, calls for all South Africans to work together and build social solidarity to get us out of this crisis.
But how the one part of South Africa comes to the party with the other is entirely asymmetric, as the weaker half will come limping rather than race to the cause.
The document declares noble ideals to strive for. To get there and build a truly just and inclusive national economy, what we must do is build the real economy in addition to mobilising our human capital far more effectively than we’ve done so far.
Social solidarity is threadbare in an economy where rent seeking thrives.
The response, like all other previous responses to our job crisis is energetic and full of seemingly necessary dole-outs and new campaigns, but says little about the underlying structural problems that our economy faces.
The financial crisis is being blamed for the current slow down in our economy and our slow descent into recession.
It, too, may be used to deflect attention from root causes.
Nonetheless, the figures show a bleak year ahead of us, indicating how vulnerable our economy is.
Manufacturing has declined significantly (by 21.8%) and job losses are expected to be high due to retrenchments in the mining and manufacturing sector. Manufacturing accounts for 16% of GDP and employs 14% of the employable population.
Car manufacturers are already lobbying government for a bailout despite the generous incentives the government is already dishing out to the industry.
Even though agriculture has done better than past performance indicates, we are still importing a lot of food. South Africa imported 67,000 tons of wheat last week, compared to 19,500 tons the week before.
Where manufacturing is slanted towards export growth, we should at least reduce our import bill through the localisation of energy security and expansion of agriculture.
This balance is out of tilt with the country’s balance of payments requirements because export led growth must be supported by a lower import bill.
There may be some float to the economy because of the infrastructure spend, but its effects may not be long-term.
Even here, some importation of foreign skills, material and capital will ensure that a portion of the R600 billion earmarked spend will end up in overseas coffers.
If we reach a 2% GDP growth-rate, that would be somewhat pleasant. But it seems unlikely. Output shrank by 1.8% in the last quarter -- the sharpest fall in 16 years.
ABSA bank, for instance, projected a growth rate of a mere 0.3% for this year. This is considerably lower than official projections.
Some things can be blamed on decisions and events beyond our control. Some of the slow down is a consequence of the financial crisis in the US and a retraction of manufacturing and import of commodities from China and other emerging economies.
But we can’t always look beyond our shores to not address weighty matters in an honest way because they arouse sensitivities about performance and failed policies.
The focus on monetary policy and GDP growth has turned attention away from the underlying factors that are important to the country’s long-term economic and social sustainability.
When it comes to the measure of economic success we still bind ourselves to narrow indicators: GDP growth, job growth rates, currency rates and inflation targeting.
The government has jumped onto the same bandwagon as the private sector in the financialisation of indicators of economic success.
In the case of companies, it would be headline earnings per share, share performance, return on shareholders equity, debt repayment ratios and all other indicators other than workers’ well being and workers share of the earnings, nor would it be investment in innovation and skills development.
What is true for companies is true for countries; financial indicators are necessary, but they can also be tools of deception in the wrong hands.
Success in this area hides underperformance in other quarters.
Government financial indicators too, are more important to big capital, the rating agencies and international financial institutions than the needs of the general populace.
They are but partial measures of the health of our economy. They don’t tell the full story.
No part, in truth, is separate from the other. And, perhaps the reasons for the mooted planning commission is to provide overall overview and measure performance on a more comprehensive basis than is currently being done.
We must use quantity metrics with quality metrics.
What is missing is the dotted lines that link financial indicators to other measures, like the quality of our graduates, entrepreneurial performance, the rate of innovation, the rate of savings, the number of scientific papers and Ph.d graduates we generate, household spend on education, health and so on.
All spending and interventions, as the Response document outlines, should also be qualified by more transparent indicators of success.
Financial indicators are immediate and short-term indicators of the health of the economy while the others tell a better story of our capacity to adapt to change and be resilient to volatility.
The truth is that great economies succeeded because of their people and not how outsiders were willing to view them or buy things from them.
They invested in the quality of their people and built their technological, scientific and manufacturing capacity on the basis of the skills and ingenuity of their people.
Our growth can be much higher if more of our people participated in the economy and produced higher value goods.
The prospect of this happening in the near future is remote given the damning statistics of the underperformance of our education system. It seems to be a recurrent challenge we can’t seem to fix.
A recent Finweek survey (26 February 2009) pointed out that 30% of our undergraduates are unemployable. They are mostly black. Moreover, at around 15%, we have one of the lowest graduation rates in the world.
There are not enough black graduates getting through the system with grades and experience to effectively be employable or exercise entrepreneurial opportunity so that our economic players and interests are more diversified.
We should be training people for two areas of the economy: government enterprise at national and local level as well as the needs of the private sector. These needs are different as they require attention to different milestones and constituencies.
We just don’t have a programme to train people in government enterprise because government doesn’t see a clear role for itself in generating wealth. It has relied totally on the private sector for this.
The 'Response' document, for instance, heavily relies on the mobilisation of the technocratic and business elite instead of the populace in creating self-sustaining local economic initiatives and enterprises.
The recent near collapse of black economic empowerment (BEE) deals demonstrates that BEE deals are not really wealth generators, but wealth sinks.
Their failure should teach us the valuable lesson of why investing in the real economy is where real wealth is to be generated. Real wealth comes from real work, not fictitious money.
BEE deals promote a culture of rent seeking because participants sell political influence for a share of the private economy rather than build anything new.
They take more from the economy than they give back. The recent refinancing and restructuring of BEE deals testifies to this as share prices have collapsed and the debt burden of BEE deals have escalated.
Greater availability of finance for small and local entrepreneurs may have produced different results.
Government performance is critical to economic success and efficiency.
Government’s bigger role in wealth creation requires the boosting of managerial capacity, performance and introducing an entrepreneurial mindset that is social justice orientated.
The promotion of local enterprise requires the urgent fixing of local government.
Already, underperformance in the local government arena, which is central to local economic development, is costing our economy its future.
Telltale signs are beginning to emerge through various reports -- the most recent being the Automobile Association’s report on the state of our roads.
The R100 billion infrastructure backlog points to poor management decisions and planning. In 1998 only 15% of our roads were considered poor; today it is 70%. The same goes for water infrastructure.
Where national government is the frontrunner on the macro-economy and concerning large enterprise through state owned agencies and incentives to big firms, local government is the frontrunner in so far as the development of micro-enterprise and self-sustaining local communities and economies goes.
The true partners for economic change should be the populace, not just big players in government and the private sector. They are important, but do not have all the answers as the 'Response' document assumes.
All change depends on the quality of our people, including the purpose by which they engage with the economy. We must do for our economy as we are doing for our new cricket, rugby and soccer stars.
Social solidarity won’t come without economic and social justice and everybody has to share and participate in it.
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6 Mar
The Wrong Approach
Saliem it seems to me that our current leadership is so bemused by money and the fact that Apartheid played a major part in cutting black people out of the money system that they thought that AA and BEE would put matters to rights for the previously disadvantaged members of our community.
This erroneous belief and the consequently proffered solutions are fatally flawed.
Because of the racial basis of our laws under Apartheid the first world component [FWC] of our economy had over the years of Apartheid only been able [allowed] to grow big enough to accommodate the white component of our community. This component, taking a generous view, was say 20% of the total population in 1994.
Now the purpose of AA is to achieve a balanced racial demography within the FWC of the economy. Thus basically 80% of the whites, in the 1994 FWC of the economy, had to be replaced over time by previously disadvantaged people.
Now inevitably, unless the FWC of the economy had expanded at a rate much greater than it has been doing since 1994, this has meant that ‘AA displaced whites’, unless they were able to start a business of their own, had to seek employment in other economies that were blind to their racial origins. According to figures produced by the SAIRR many such displaced whites have been doing just that. Their displacement from the FWC of the economy might have been of benefit to the person(s) who replaced them but the loss of skilled manpower has been a complete disaster for the country as a whole. The collapse of our road system is just one of the indicators of this.
Furthermore if AA was supposed to right the employment situation for the majority of the previously disadvantaged people then given the circumstances in the country it simply could not do so. This is so for two very practical reasons.
The first reason is revealed by simple arithmetic. Even if the demographic ratios in the FWC of the economy could be fully brought into balance only 20% of 80% of the population, i.e. the previously disadvantaged population, could, because of its small size, be accommodated in the FWC of the economy and that means only 16% of the previously disadvantaged population. Consequently there can be and is nothing in AA for the remaining 64% of the population, i.e. the previously disadvantaged. Basically you cannot successfully force a gallon into a pint pot.
The second reason comes about because the previously disadvantaged component of the population actually falls into two groupings. The one grouping is comprised of the people who have enough education to be possible candidates for employment in the FWC of the economy and the other grouping is comprised of those who have insufficient education for such employment. AA can offer nothing to those people. Given our educational history and the current parlous state of our education system this grouping is by far the larger of the two groupings.
As a consequence AA has only been able to offer gains to a very small proportion of the previously disadvantaged population, for the remainder there can be, and has been, nothing of benefit in AA. In fact AA has made their plight worse because the economy has not been expanding or functioning as well as it would have been if AA had not been introduced.
I think if government had not been so preoccupied with racial issues but had instead been focussed on inspanning the resources of the whole population in endeavours to uplift the economy we would all have been in a much better condition and more able to deal with the current economic melt-down than we are right now.
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