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OPINION : Racial identity politics blocks globally proven solutions for poverty

BUSINESS LIVE / 20 NOVEMBER 2018 - 05:10 / SHAWN HAGEDORN

Half the SA population survives on R40 per day but this is painted as a black-white injustice issue by political parties beholden to ideology

That the governing party can’t conceive a workable economic plan is unsurprising given how heavily it is weighed down by ideological and factional battles. But why do SA’s other centres of influence offer only stillborn alternatives? Might unravelling this conundrum reveal a sustainable high-growth path?

A debt trap that is worsening a high-volume poverty trap should focus minds.

How can it then be that with vast financial services sophistication, many world-class executives and exceptional think-tanks, SA lacks a workable growth plan? How deep must the chasm between politics and economics be to preclude not just success but even the ability to envisage a path to success?

The divides are deep and complex, but manageable. Two mutually reinforcing blockages dominate the disconnects.

First, none of the key actors employs the tools necessary to successfully frame, assess and manage the core economic challenges. Second, the 1990s unifying national transformation creed has been exploited by identity politicians, such that it has become politically divisive and economically counterproductive.

Whereas business leaders and many others mostly perceive economics through capital market metrics, the ANC, EFF and other political parties frame economic issues using social justice criteria that prioritise redistribution at the expense of growth. The required diagnostic tools, which the national dialogue lacks, are those of business savvy development and political economists.

Capital markets generate continuous headlines but it is a subfield within the broad discipline called economics. The price discovery process central to capital markets mitigates the uncertainties of future events, thus spurring greater investments in productive assets. While this greatly levers effective government policies, when policies need to be structurally overhauled capital market metrics distract from correctly framing the issues. Relying on capital market metrics to shape policy solutions equates to using surgical implements for mental health breakdowns.

If commercially grounded expertise in development and political economics informed SA’s policymaking, three framing factors would feature: objectively unpacking the past 25 years can spotlight missteps and misconceptions; fixating on short-term wins in the absence of a workable long-term plan is nonsensical; and the country’s core growth blockages trace to a huge political-economic chasm.

Mountains of capital markets data, charts and reports indicate that the economy enjoyed good times and bad over the past quarter of a century. In fact, not for 10 minutes has SA’s economy ever been on track towards achieving broad prosperity by midcentury. This acknowledgement discredits focusing on short-term gains and relying on capital market metrics.

The core disconnects relate to how tempting it is for leaders in the dominant political party, largely defined by race and fading liberation credentials, to exploit the country’s legacy of race-based economic injustices. Further complicating the mix, the former liberation movement harbours elements favouring socialism, isolationism, authoritarianism and patronage. Cleaning up corruption is not sufficient to fix the economy; in fact, the resulting media lather obstructs the surfacing of deeper impediments.

That the ANC and its largest offshoot, the EFF, perceive economics through social justice lenses and their policies and political dialogue focus on redistribution is unsurprising. Half the population survives on about R40 per day. However, rather than seeing this as a poverty problem, it is painted as a black-white injustice issue. Globally proven solutions are then blocked by racial identity politics.

Nations can better transcend identity politics when they have a constructive national creed. Belief in unity through transformation brought about a mostly peaceful political transition while skirting the nationalisation of the banks and mines. A quarter of a century down the road, prosperity still bypasses a majority of South Africans, while expanding reliance on redistribution is becoming increasingly counterproductive.

Political economists would contrast SA’s national creed versus the traditional American dream and the much newer Chinese dream. Both dream creeds tamped short-termism, populism and identity politics. More recently, countless commentators have linked the decline of the American dream to that country’s rising populism and fervent identity politics.

Astute development economists appreciate the central importance of growing the number of sustainable middle-class households, also known as spreading economic freedom. They would highlight variances between SA’s modest success in expanding such households versus the much larger increase in the number of middle-income households. The two normally move in tandem but SA is a stark outlier.

The national dialogue, as well as government policies and capital market metrics, miss crucial characteristics peculiar to SA’s economic development challenges. Notably, most of SA’s emerging households have low net assets alongside many dependants, offspring and others, reflecting persistent poverty and low employment. This elevates household-level event risks. For each gainfully employed emerging head of household there is an oddly high number of adult and nonoffspring child dependants who are often surviving within the range of a subsistence existence, with few assets. Thus financial emergencies are frequent.

Such circumstances encourage high-priced lending. Anyone who can model a household budget on a spreadsheet can see what happens after a few years of heavy reliance on expensive debt. That declining household purchasing power has thus become common provides context to aggressive pressure for above-inflation wage settlements, the Marikana tragedy, and why bailing out African Bank was antidevelopment.

The low expansion of sustainable middle-income households is also explained by various job-creation and social-investment schemes with little potential to increase the net number of sustainable jobs. A decade of stagnant per capita income means the economy lacks a growth catalyst. Often creating 100 jobs will reduce a like number of jobs elsewhere. Such programmes spew unsustainable “progress”.

Economic catalysts must increase productivity. This can be done by making individual employees more productive or by increasing the number of people employed. But to increase the aggregate number of people employed requires access to increasing purchasing power. SA’s domestic purchasing power expansion is weak as household balance sheets and growth in disposable income are weak. Meanwhile, onerous labour regulations erode overall worker productivity.

Today’s high-growth economies focus on growth through surging value-added exports. Policies overly focused on redistribution become increasingly antigrowth while being particularly adverse to value-added exporting. However redistribution regulations are structured, they are a tax on production and thus undermine export competitiveness.

In summary, SA’s policies are fundamentally self-defeating. This traces to political chasms and not employing the right analytical tools and methodologies. Policies undermine sufficient competitiveness to sell to deep-pocketed international consumers while simultaneously undermining the growth in domestic purchasing power. Hence the poverty and debt traps.

What solutions does such an analysis support? First, public- and private-sector leaders must swiftly get up to speed on the commercial and political realities of economic development. For instance, SA’s innate assets are modest relative to the nation’s volume of entrenched poverty. Meanwhile, SA’s political forces are formidable, yet they need not be obstacles.

Second, bankers and regulators must explore ways to reduce lending costs and pass the savings on to consumers in ways that lead to far fewer over-indebted households. Much is possible at little cost.

Third and most importantly, new value-added export channels must be afforded special dispensations from various forms of redistribution-focused legislation and other forms of anticompetitive regulations.

If such seemingly small shifts had been adopted two decades ago, and they had helped bypass other misconceptions and missteps, what might have been achieved? Something resembling this country’s vast potential?

• Hagedorn is an independent strategy adviser.

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LINK : https://www.businesslive.co.za/bd/opinion/2018-11-20-racial-identity-politics-blocks-globally-proven-solutions-for-poverty/

Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

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