Last week I read three newspaper articles that are useful in making sense of what is right and wrong with the nature of discourse on economic policy in our country. All three suggested that we need a better way of managing national development and how we select the policies that can best achieve growth.
Business Day’s Hilary Joffe wrote that we need a richer debate about fiscal policy (“Budget process requires a deeper debate”, March 7). This was triggered by the events of February 19, when the finance minister was to table the budget speech but could not because the cabinet could not finalise certain aspects of its financing. It was consequently rescheduled for March 12.
Joffe correctly decries the unhelpful public comments that followed from parties in the government of national unity (GNU) about policy options to finance the budget. Once you publicly commit on a line you may have difficulty walking back on it, even if the evidence in front of you demands it. This deadlocks policy discussions in circular political posturing and zeros out the rational trade-offs necessary for parties to pass a useful budget.
My take is that we need a far richer economic debate that stretches beyond the budget. That broader debate will help foreground a realistic fiscal strategy in the medium term. There is a serious macroeconomic trap we must pull the country out of, and the strategic choices available to us need a more sober debate than dogmatic posturing. We need a debate that focuses on a growth agenda, backed by society at large and outlining clear tasks for the government, labour and private sector.
The goal must be employment-generating growth that diversifies our economic profile through public sector expenditure in critical infrastructure, higher private sector investment in industrial transformation and a productivity compact enjoining labour. This must include a strategy to readjust the economy’s outward posture to the global market, especially into the continent, in an age of unmediated rapture on the rules of market access as the economic competition between the US, China and EU gains chaotic momentum.
To illustrate the urgency of this matter I refer to the comments of Discovery CEO Adrian Gore, published by News24 on March 5. Gore made the crucial observation that high unemployment is sabotaging the growth model of medical aid schemes: they are starved of new subscriptions from younger members. The result is pressure to raise premiums on current but dwindling subscriptions as they service the health claims of older members. In this equation, unemployment and economic stagnation are threatening the viability of medical aid schemes and choking demand across the economy.
Gore’s appeal for government intervention to remedy the situation is, in principle, valid, but directed to the wrong end of the policy spectrum. Public policy must rescue the economy, but in a manner that is not rent-seeking. The direction of public policy must not be to rescue the profitability of a few firms by illiberally barring consumers from changing medical aid companies, for instance, in search of lower premiums.
The key bind to unlock is the lack of economic growth that is undermining income growth and leaving large numbers of able young workers unemployed. Therefore, public policy must intervene to unlock income and employment growth in the wider economy. Once that socially productive outcome is realised, the free choice of more employed individuals to subscribe to medical aid schemes will achieve the stability of businesses that Gore is worried about.
This brings me to the other important article in Business Day, by Investec Wealth & Investment’s Brian Kantor, who makes the point that even when there are wealth disparities in society “savings that add to wealth and are invested productively help to lift the incomes of poorer households” (“The sages agree that inequality of wealth is helpful”, March 7). The mechanism by which this “lifting” happens is through the direction of savings to investments that create new assets that increase the country’s capital stock, create employment for poorer households and is available to risk-taking entrepreneurs to build new firms.
Importantly, we must assume that some of the income of those with earnings is indeed saved. This assumption has been partly mediated by the legislative dispensation that obliges workers to defer consumption of part of their income through pension savings. While this savings system is not enough and individuals must still be encouraged to save more, it nonetheless offers countries a starting point for capital formation.
Kantor correctly notes that “the more such capital is created and made available to the economy in the form of plant, equipment, dams, roads and ports, and the more efficiently they are managed, the higher will be the incomes earned by poorer households”. Two crucial principles are put forward: channel a sizeable part of national savings towards particular asset classes that create industrial employment, and do all that is relevant to ensure those assets are managed efficiently to secure their value.
But what happens when the savings stock and other private capital invests more outside SA or in bond markets and non-industrial firms and less on domestic industrial equity? How do we finance the country’s growth-enhancing, employment-generating and income-distributing capital stock such as new factories, equipment, dams, roads and ports, rail, and telecommunications infrastructure? In that situation, my and Kantor’s otherwise correct calculus suddenly becomes indeterminate.
This is the disequilibrium between savings and investment that the budget process ends up burdened with solving. It is a fiscally untenable knot. Kantor’s thesis ultimately warns against arbitrary expropriation of capital to solve this problem on justness and efficiency grounds. What I believe would be commonly agreed is that we do need a rational debate, as put forth by Joffe, on how to get the holders of this capital to work with the government, labour and civil society on a common compact to reset the savings and investment calculus in the interest of growth-igniting interventions to improve employment, income and national productivity to improve overall welfare.
We have a lot of work beyond March 12.
• Godlimpi, an ANC MP and head of the party's economic unit, is deputy trade, industry & competition minister.
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