Using the DA’s economic reform agenda to challenge ANC policy: Katzenellenbogen

The Democratic Alliance (DA) presents a robust economic reform plan to combat unemployment, foster small business growth, and challenge the ANC’s policies. Departing from its past stance, the DA proposes market-oriented measures, including freezing the minimum wage and privatisation. This contrasts sharply with ANC’s state-centered approach. The plan aims to boost job creation and economic growth, but faces criticism and questions regarding implementation. Nonetheless, it offers a distinct alternative in the political landscape.

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By Jonathan Katzenellenbogen* 

At long last the Democratic Alliance (DA) has a comprehensive economic reform agenda to fight unemployment, spur small business start-ups, raise growth, and challenge the ANC.

For the first time in a South African post-1994 election campaign, a broad economic reform agenda might now really be up for debate, and the ANC could find itself on the defensive for its failed economic policies.

The DA has mostly leaned toward pro-market views, but “The DA’s plan to Unleash Enterprise, Grow the Economy, and Create Jobs 2024,” released last month, brings these and some new positions together in one place. About ten years ago, the DA supported Black Economic Empowerment, but it has since abandoned this position.

If it gains power, the DA says it would freeze the minimum wage and change the mechanism for negotiation of wages, which favours large businesses and the unions and deters employment creation. It would improve the environment for small businesses, reduce the burden of public debt, ease trade restrictions, encourage exports, end state-owned-enterprise bailouts and privatise. It would not cut grants.

This certainly underscores stark differences between the ANC and the DA. ANC policies are more about extending the power of the state and dividing the pie, with expropriation without compensation, the National Health Insurance project, retaining control over state enterprises, and empowerment for a few. 

The DA policies are mostly about enlarging the pie, while protecting the poor with grants and making things easier for small business and micro-enterprises.

Some DA critics might easily label its economic policy document as full of failed neo-liberal policies and trickle-down economics. But policies similar to the broad thrust of the DA’s agenda have brought hundreds of millions of people out of poverty over the past 40 years. There are differences, but for the most part, China and India relied on scrapping a host of regulations and becoming far more market-oriented.

The document is hardly about what the critics disparagingly call trickle-down economics. It includes a proposal to continue the Social Relief of Distress grant, introduced to temporarily relieve hardship during the Covid pandemic, as a job-seeker allowance. The party says it would also raise the Child Support Grant from its present level of R530 to R760 a month per child, the same level as the food poverty line. And getting rid of rigid labour laws stands a good chance of increasing job numbers. 

The DA and the ANC have already clashed over the proposal to freeze the minimum wage, which is relatively high, based on a number of indicators. As the minimum wage is eroded in real terms by inflation, businesses are more likely to take on more labour, the DA argument goes.

It also proposes to change the system of collective bargaining under which big companies and unions essentially agree on wage rates. The deals are then imposed on smaller companies, although they are not parties to them. Unless they are given an exemption, smaller companies then need to pay the same rates as the larger companies, although their labour expenses tend to be far higher as a share of their total costs. This is a serious hurdle to the ability of small companies to grow and employ more people.

Under the ANC, the unemployment rate has risen from 20 percent in 1994 to 32 percent, at the most recent reading in the fourth quarter of last year. 

This is an extraordinarily high level by international standards. If the DA can get across the idea that the policies of the ANC and those supported by its Congress of South African Trade Union (COSATU) allies are to blame for high unemployment, it will have achieved some success in its campaign.

The fight between the two camps on these issues seems to have begun. DA leader John Steenhuisen has delivered two speeches accusing Cosatu  and its ANC ally of responsibility for high unemployment, due to relatively high minimum wages and rigid labour laws.

 On Workers’ Day, President Cyril Ramaphosa went on the attack. “We must resist all those in our country – parties like the DA and FF Plus – who think the Constitution exists to protect the privileges of a few,” he said.

And Cosatu’s acting spokesperson, Matthew Parks, observed that the DA “hates workers and wants them to be treated like slaves.”

Last week, my fellow Daily Friend columnist, Ivo Vegter, questioned whether the DA’s minimum-wage stance could amount to shooting itself in the foot, in the run up to May 29th. He wrote that the DA must find ways of making this into a viable election proposition. 

The real problem for the DA is that long-winded explanations of party positions on its economic policy are not really possible in a campaign that is heavily dominated by sound bites and social media posts. 

But many who are unemployed must have thought about the possible reasons for their plight. Some of those who believe the ANC has not delivered “a better life for all” must be thinking about alternatives. And polls have repeatedly shown that many voters are at least prepared to give a hearing to the DA.

So there is scope for the DA to use its economic policy document as an important part of its campaign. 

The DA says it can create between 1.9 and 2.5 million new jobs if its policy suggestions are implemented. This appears to be more of an assertion than a statement with evidence. It would have strengthened the DA case if it had revealed a few details of what lies behind its numbers on job creation. The party still has time to give us the evidence on how it would create jobs.

Nevertheless, easing up on labour regulation, privatising the mismanaged state enterprises and faster growth would give us a far better chance of boosting job creation. It has happened elsewhere and there is no reason why it should not happen here, with reforms. And a reform programme would certainly mean that we have a far better investment story to tell the world.

There are some good ideas on other policy areas. The policy document speaks at length on streamlining the start-up process for small and micro-enterprises and having the banks extend micro-enterprise loans. Scrapping import duties on cheaper bakkies on the basis that these are essential business tools for many small and micro businesses is a good idea. Current import tariffs raise the prices of imported bakkies by 25 percent, making them unaffordable to aspirant entrepreneurs. The DA also wants to introduce entrepreneurial programmes in schools, that would cover how to write business plans, financial literacy. market research, and innovation.

In place of empowerment policies, the DA proposed some time ago that these be replaced with the United Nations’ 17 Sustainable Development Goals. But these are somewhat awkward criteria on which to assess corporate performance. For example, how should one assess corporate performance on alleviating hunger? A more imaginative and practical idea being discussed among some local economists is that of providing generous tax concessions to companies that invest in new facilities in townships and deprived areas.

There is much in the DA’s economic policy document for the party to put at the heart of its campaign. We are now surrounded by signs of growing economic failure by the ruling party and a cost-of-living crisis, and the ANC must be challenged on these.

While the DA does not want to speak of coalition possibilities at this stage, there is a big question as to how it could possibly pursue its policy agenda in a coalition with the ANC. 

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*Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist.

This article was first published by Daily Friend and is republished with permission