JOHANNESBURG — Last week’s ANC policy conference seemed to deliver very little on actual policy. South Africa’s economy is in a mess and there’s a leadership paralysis that is holding back any hope of progress. The ANC, meanwhile, seems stuck in socialist, 1950s rhetoric and it has very few ideas on how to kickstart economic growth. Instead, it has debates on whether or not to use the Bell Pottinger inspired phrase ‘white monopoly capital’. The world is also moving on when it comes to the so-called Fourth Industrial Revolution (4IR). Just last week, Volvo announced that it would only make electric cars from 2019. The world is moving on, and, in turn, is leaving the ANC and its outdated thinking in its dust. Shawn Hagedorn succinctly highlights this problem in this piece below. South Africa needs to start adopting forward-thinking if it wants to even begin to compete in this new world. – Gareth van Zyl
By Shawn Hagedorn*
That the ANC’s leadership mostly sought party unity from its so-called “policy” conference should greatly trouble all South Africans. That it hasn’t reflects a sparse appreciation that SA’s widespread poverty and lack of growth drivers trace directly to policy failures.
When Mandela was released signalling apartheid’s demise, extreme poverty was well above 50% across both sub-Saharan Africa and East Asia. It has since fallen to just over 40% in SSA while plummeting to under 10% in East Asia. Today, a majority of South Africans survive on incomes near or below the World Bank’s current definition of extreme poverty, $1.90 per day.
East Asia’s extraordinary success at nearly eliminating dire poverty is mostly explained by China’s pivoting to embrace capitalism while integrating into international supply chains. Consequently, over half of the people who still haven’t escaped extreme poverty live in SSA. Considering its many advantages, SA stands out as the nation least effective at reducing poverty.
Since 1990, the portion of the global population living in extreme poverty has dropped from well over a third to less than ten percent. As capitalism was first gathering momentum two hundred years ago, it was the inverse of today as 90% of the global population was then very poor.
SA’s policy debates routinely sidestep why some nations perpetually struggle while so many others prosper. Capitalism was necessary to accommodate profound industrial growth. As the pace of innovation hectically accelerates, central planning is less viable than ever.
The plummeting of global poverty required decolonisation but that guaranteed nothing. The poorest countries today are in Africa and they, along with many of the most successful economies, are former colonies. The world’s massive poverty alleviation mostly reflects: good governance; industrialisation; capitalism; and value-added exporting.
As traditional manufacturing employment is contracting globally while becoming vastly more skill-intensive, combining the other three components is now essential.
SSA’s resource wealth encourages poor governance and this leads to pervasive poverty amid narrow wealth clustering. Being landlocked exacerbates matters as does a lack of snow-capped mountains to feed year-round navigable rivers which then inspire cities and trade. Thus much of SSA is inherently resistant to poverty alleviation, whereas in SA causes trace decisively to governance issues. For instance, SA unites two oceans but its policies have, for many decades, demonstrated isolationist biases.
Patronage systems rely on creating many unsustainable jobs tying the job holder’s fate to senior cronies. (This resembles the colonial tactic of backing puppet governments that would be non-viable without support from the imperial power.) High unemployment, accompanied by welfare payments decreed by cronies, further entrenches patronage – conditional upon funding.
Patronage networks are typically funded through resource extraction. SA’s massive patronage has been funded through exporting commodities, government borrowings, taxes, regulations, and looting. SA’s tax base was unsustainably enlarged through ballooning household debt without a much-needed expansion of sustainable jobs. Remedying this is as crucial as untangling state capture.
SA’s household indebtedness and scant employment prospects impede domestic consumption. Meanwhile commodity demand suffers from the shift to a services-led global economy. Thus, unless value-added exports are increased, poverty will rise.
As the ANC is vastly more vulnerable than it was a year ago, its dialogue more often welcomes terms such as “growth” and even “competitiveness”.
Focusing on inequality misses the point. SA has so many poor people because the country is awful at managing poverty alleviation. That some South Africans are highly skilled and prosperous is not the problem. Improving education outcomes is certainly desirable but, as emphasised recently by Ricardo Hausmann, a globally renowned poverty expert, education is not what restrains SA.
Reducing some private sector concentrations would be beneficial yet the primary problem with monopolies traces to corruption at state-owned enterprises. While it has become clear that SA’s business CEOs know little about poverty alleviation, or how to fix the economy, they represent neither the solution nor the problem.
High volume poverty alleviation requires selling value-added goods and services to markets with profound purchasing power. For SA this will require sweeping policy shifts to support competitive exporting. Communists and cronies never get such policymaking right.
The pace of global poverty alleviation has accelerated in recent decades due to three main factors: technology defeating distances; global trade reforms; and more affluent countries to target with value-added exports.
It is wrong to think: SA cannot rapidly reduce its poverty; or that it won’t get worse without sweeping policy reforms embracing global realities.
It is too late for SA to imitate how the West and East prospered through traditional manufacturing. Conversely, there have never been so many affluent markets to target or enabling technologies.
Industrialisation was about mass production fueled by hydrocarbons. Solar and wind power have finally achieved cost competitiveness. “Mass customisation” has been similarly advancing for about a decade. It is quite conceivable that this is the opportunity space for SSA to achieve broad prosperity.
The central advantage humans have over robots distills to: empathy. This is central to mass customisation. Africans could outcompete westerners and Asians at commercialising empathy.
SA’s policies are far too hostile toward business interests. If mass customisation suddenly becomes a big thing, other SSA countries would benefit at SA’s expense. In 1994, no one could have imagined landlocked, war-torn Rwanda outcompeting SA. But today good governance committed to business-friendly policies drives poverty alleviation.
The ANC’s policy conference did not herald new awakenings spawned by solutions-focused debates. The emphasis was on managing factions to maintain the status quo. As long as there is little awareness of how to achieve large-scale poverty alleviation, propaganda will substitute for problem solving.
- Shawn Hagedorn is an independent strategy adviser.