Looming SA coalition, no bed of roses – Shawn Hagedorn

CAPE TOWN — After reading this excellent, dispassionate analysis of South Africa’s prospects should an increasingly-likely national coalition government come to pass, I couldn’t shake an overwhelming sense of despondency. However, its actual valence is a clarion call to action. Independent strategy analyst Shawn Hagedorn’s conclusion is that the outcome of the blinkered, isolationist, economic cul-de-sac the captured ANC has led us down is akin to total dependence on nuclear or coal-powered energy; futile. He unpacks the hopes and risks of a much-touted solution; a national coalition government, pointing out that the current policy-making paralysis will persist due to factional interests playing out. The hope and prayed-for benefits would be beating back corruption and increasing implementation capacity. But we’ll need to temper our obsession with social justice issues and put in place global market-friendly strategies. Like many other respected observers, he shouts from the rooftops that focussing solely on reparation is economically suicidal. Building a black middle class while repairing the economy requires a focus on merit. The clincher for me was his powerful historical illustration of the outcomes of reparation versus an Ubuntu-like rebuilding. If you consume no other brain food today, take a bite of this. Reality rules. – Chris Bateman

By Shawn Hagedorn*

The ANC’s prospects to remain united and achieve an electoral majority in 2019 are steadily dimming. Yet a national coalition government risks a repeat of 1994 where a new regime is morally legitimate but factional interests preclude effective policy making.

What the IMF and credit agencies have in mind when they stress the need for sweeping policy reforms receives minimal attention inside the ANC or amid SA’s public dialogues. Neither SA’s credit quality nor its broad social goals will improve without moving decisively toward more competitiveness focused policies in areas as sensitive as labour legislation. Purging corruption and upping implementation capacity in the absence of effective policy reforms will only delay an economic embolism – and not for long.

Zapiro’s take on local government coalitions. More collision cartoons available at www.zapiro.com.

The country’s political and economic dynamism has been drowning amid social justice quagmires. Encouragingly, a coalition government would have a good chance of tamping the political exploitation of historical injustices simply through agreeing a well-reasoned core goal. The wording should resemble: ‘To rapidly expand SA’s sustainable black middle class.’

Including the term “sustainable” is a game changer in that it impedes political gaming of historical inequities to advance cronyism.

Aspiring to poorly defined, and unrealistic, perceptions of near-term economic equality is counterproductive yet a natural consequence of having a ruling party beholden to communists, cronies, unionists, and populists. A 2019 national coalition government would similarly unite disparate factions. Neither anti-apartheid legitimacy nor anti-corruption campaigns readily translate into mandates to create a competitive economy. Populist pressures to address historical inequities must be harmonised with 21st century economic development requirements.

History shows that assessing major pivots through a moralistic lens can obscure critical insights.

Shawn Hagedorn

The First World War unleashed massive atrocities. Upon surrendering, Germany was forced to accept crushing war reparation liabilities and restrictions. John Maynard Keynes, the most influential economist of the 20th century, and an adviser during the peace conference, resigned in protest correctly anticipating the ‘devastation of Europe’ which would flow from prioritising reparations ahead of cooperation-based growth.

Morals trace to group survival which distills to economics and security. After the Second World War, Keynes’ advice was followed. The US volunteered to significantly contribute to rebuilding the economies of its allies and enemies. Truly profound economic and geopolitical benefits accrued to the US from its generous help in rebuilding the economies of its enemies that had instigated the war, Germany and Japan.

Vibrant capitalism provokes sweeping advances accompanied by frequent missteps. The ANC resists such a vibrant approach as it includes non-ANC actors determining things like bankruptcies. Meanwhile the party has presumed ongoing growth sufficient to accommodate its emphasis on reparations, that is, on redistribution.

The US financial crisis of nearly a decade ago greatly altered the behaviours of its investors, workers, and consumers. Political and social resistance to changing economic conditions suddenly became manageable. This led to today’s historically low US unemployment reflecting that economy having recalibrated to a more competitive setting.

SA’s similar challenge was the collapse of African Bank. Rather than see this as the fortuitous opportunity that it was to begin to prudently taper excessive consumer borrowing, the bank was bailed out with government resources. Repayment was made contingent upon profits from indebting large numbers of low- and middle-income households.

SA’s domestic consumption growth now looks to flatline indefinitely. Nonetheless, policymakers flirt with ‘fixing’ the post office through its offering consumer loans. Such thinking is irreconcilable with expanding SA’s sustainable black middle class.

Supporters of the ruling African National Congress (ANC) cheer at a rally to launch the ANC’s local government election manifesto in Port Elizabeth, April 16, 2016. REUTERS/Mike Hutchings

SA’s economy pre-1994 was not predicated on integrating into the global economy. Thus the rejuvenating benefits of bankruptcies were not appreciated as a necessary consequence of disruptions leading to much-needed rising competitiveness. The African Bank rescue demonstrated the staunch resilience of such anti-bankruptcy biases mixed with the ANC’s centralised economy instincts.

A coalition government won’t be able to initiate much needed policy reforms without realistically embracing core considerations, such as:

  • Prolonged stagnation hectically restricts the ability of governments to intervene effectively in an economy to advance desirable social outcomes. SA’s central political challenges, benefiting those least skilled and least resourced, are particularly resistant to government interventions in the absence of sustained strong growth.
  • SA has no growth drivers due primarily to its lack of access to large consumer markets. This traces to policies which undermine competitiveness thus undermining global integration.
  • SA’s natural resource wealth is, in effect, pledged in perpetuity to benefit the poor. Related difficulties reflect such processes being poorly managed and that the compounding needs of the poor dwarf the depleting value of the resource endowments.
  • The more black managers the better, but to steadily increase SA’s sustainable black middle class, merit must be celebrated.
  • Land, and more so labour, have long been playing declining roles in food production. Reducing farm productivity increases food prices undermining the already limited household security of the poor.
  • SA must much more fully integrate into the global economy primarily to increase access to markets. SA’s consumers will long remain too overly indebted and under employed to spur sustained economic growth.
  • Access to foreign investment is less important than access to evolving business inputs, particularly knowledge.
  • SA’s emotive headline issues, corruption, education, and inequality, are all important but they receive too much attention at the expense of focusing on integrating successfully into the global economy.

Finally, people who play the board game Monopoly in organised competitions know that the most powerful strategies emphasise doing the most trades. It is fine if in each trade the other player benefits a bit more. Business builders also know that customers and suppliers must benefit for their businesses to advance.

  • Shawn Hagedorn is an independent strategy adviser. You can follow him on Twitter @shawnhagedorn
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